The markets of Asia that allowed the EU to drive an export-led economic recovery following the 2008 crisis are now faced with a recession.
The US-China trade war is taking its toll on Hong Kong, China, Japan, India, Singapore, and South Korea, all of which are looking at deteriorating economic conditions.
China’s GDP slowed to 6% in the second quarter – the lowest since 1990 – despite a double-digit currency devaluation over the last year (12%), a deficit-driven investment programme, and accelerating credit supply.
China’s factory output is expected to contract for the fourth straight month in August. This has had a major impact on companies such as Apple, who pays a 15% import tax for products made in China. While the American company is expanding to other emerging economies, namely India and Brazil, Apple relies on China for chips, glass, aluminium casings, cables, circuit boards – all of which adds up to just over 47% of its supply chain.
As a result of Beijing’s deteriorating relationship with the White House, other Chinese manufacturers are taking steps to preemptively decouple their value chains from the US.
Huawei, which has come under intense scrutiny over the last year due to its alleged ties to the Chinese intelligence services, has announced that its next flagship phone, Mate 30 Pro, no longer needs to make use of the Android Operating System and is planning to rely on its own Harmony. The question now is whether its phone will have access to Google’s ecosystem – the Chrome browser, Google Maps, Gmail, Google Play, and YouTube.
The US accounts for roughly 20% of China’s exports. Losing access to US software and platforms, such as Google, would have a major economic impact on China and could also hinder the shipment of Chinese exports to Europe, as well.
The ongoing pro-democracy demonstrations in Hong Kong have also added to the downturn of the economy in mainland China, as the former’s GDP contracted by 0.4% over the second quarter of the year.
Reliant on financial services and high-end electronics exports, Singapore has also seen a steep 3.3% contraction of its economy in the second quarter. The slowing demand for electronics also hit South Korea, whose economy grew by 1.1% in the second quarter after a 0.4% contraction in the first.
India is growing at a five-year low of 5.8% with a negative outlook as spending has come to a standstill and the world markets remain jittery due to renewed political tensions in Kashmir.
Japan is outperforming growth projections, achieving 0.4% growth in the second quarter of 2019, far outpacing the expectations of just 0.1% growth, but the economy is expecting a shock as a new steep retail tax is introduced in October.