"The Real Economic Shock Is Yet To Come" - Trade War Deepens Across Asia 

The last chance to avoid a full-blown 2019 trade war may come later this month when President Trump is scheduled to meet with Chinese President Xi Jinping at the G-20 Buenos Aires summit in the city of Buenos Aires, Argentina. It will be the first-ever G-20 summit to be hosted in South America and could be one of the most significant meetings in quite some time -- as both leaders will try to resolve trade disputes.

Right now, the economic impact of the escalating trade war between Washington and Beijing seemed to deepen last month as factory activity and export orders dove across Asia, with some analyst warning Reuters that the worst has yet to come.

New data earlier this week showed exporters and factories came under severe pressure, as manufacturing surveys showed some growth in China, but a rapid slowdown in South Korea and Indonesia and a straight out contraction in activity in Malaysia and Taiwan.

Those data points followed weak industrial production numbers from Japan and South Korea on Wednesday.

Much anxiety was seen by computer and human traders on Thursday, as U.S. Treasury bonds fell after data suggested a slowdown has now washed ashore into U.S. manufacturing, construction, and productivity.

The Institute for Supply Management (ISM) said its index of national factory activity declined to a six-month low of 57.7 points last month from 59.8 in September. A reading above 50 indicates growth in manufacturing, which accounts for about 12% of the U.S. economy.

"You have a tightening of monetary conditions around the world, a slowdown in Chinese demand, and financial market turmoil that affects sentiment and investment decisions," said Aidan Yao, senior Asia EM economist at AXA Investment Managers.

Yao said, "many orders from abroad are still frontloaded in anticipation of yet more tariffs and the impact is still mostly indirect, through the business confidence channel."

"The real economic shock is yet to come," he warned.

China reported slower manufacturing growth in October for the second straight month as the country's trade war dispute with the U.S. deepens, according to a private sector manufacturing report.

The manufacturing Purchasing Managers' Index (PMI) was 50.2 — lower than the 50.6 that analysts expected in a Reuters Eikon poll. The official manufacturing PMI was 50.8 in September.

A DBS Bank examination of Asian supply chains for products headed for the U.S. shows the most significant exposures in machinery and electrical equipment are in South Korea, Singapore, Malaysia, the Philippines, and Taiwan.

The report also mentioned South Korea's minerals and petrochemicals exports were exposed, as well as Indonesia's transportation industry, which studied the correlation between China's imports from Asia and its U.S. exports.

In late August, we pointed out how the first round of US-China tariffs in early July might have already slowed down global trade. Now, Reuters points out that the Harpex index, which tracks weekly container shipping rates, has collapsed 25% from its June peak.

Reuters notes that "things can get worse."

"Washington has already imposed tariffs on $250 billion worth of Chinese goods, and China has retaliated with duties on $110 billion worth of U.S. goods in a row sparked by U.S. President Donald Trump’s demands for sweeping changes to China's intellectual property, industrial subsidies and trade policies.

But absent any deal between Trump and Chinese leader Xi Jinping, who are expected to attend a G20 summit this month in Buenos Aires, the recently introduced 10% tariffs on $200 billion of Chinese goods will be raised to 25% and other tariffs may be placed on the remaining $250 billion-or-so of Chinese products which escaped the initial rounds," said Reuters.

And here is the bombshell: "As everyone anticipates a further tariff hike...there is still a lot of front-loading going on. After Jan. 1, we expect many trade and economic activities to tumble," said Kevin Lai, senior economist at Daiwa Capital Markets.

The storm clouds have been gathering for many months, it is now that the downside risks are becoming increasingly more pronounced. A recession is coming.