South Korea’s Manufacturing Sector Contracts in October Amid Tariff Pressures

South Korea’s factory activity declined in October, reversing a brief expansion from the previous month, as manufacturers struggled with weak demand and growing concerns over global trade tensions. According to S&P Global, the country’s Purchasing Managers Index (PMI) fell to 49.4 in October from 50.7 in September, slipping below the 50-point threshold that separates growth from contraction. This marks the eighth contraction in the past nine months for Asia’s fourth-largest economy.

The downturn was driven by declines in both output and new orders, reflecting subdued domestic demand and the ripple effects of U.S. tariff measures. Businesses cited that the ongoing trade policies from Washington have weighed heavily on export performance, particularly in shipments to the United States. Usamah Bhatti, economist at S&P Global Market Intelligence, noted that “the positive signals for South Korea’s manufacturing economy observed at the end of the third quarter largely evaporated in October,” adding that tariffs had a pronounced effect on export orders.

Supporting this, the index for new orders dropped to 47.6 from 50.2 in September, while output decreased to 49.5 from 51.5. Despite the downturn, South Korean factories faced a sharp rise in input costs at the start of the fourth quarter, largely due to global supply chain challenges and rising raw material prices. However, some manufacturers managed to pass part of these higher costs to consumers, softening the financial impact.

Meanwhile, trade relations between Seoul and Washington remained in focus after U.S. President Donald Trump and South Korean President Lee Jae Myung finalized a trade agreement capping U.S. tariffs on Korean cars and auto parts at 15%. While the deal provides some stability for the auto industry, analysts suggest that broader manufacturing challenges persist amid uncertain global demand and elevated production costs.