Factory growth in major manufacturing hubs showed signs of cooling last month as companies braced for potential damage from rising global trade tensions while also grappling with accelerating inflation and a strong dollar.

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U.S. President Donald Trump’s moves to slap tariffs on some of the country’s most important trading partners have rattled financial markets, and many are now fretting about the potential threat to what is now mostly synchronized world growth.

Stocks rose and bond yields fell on Friday as investors welcomed an apparent end to a political crisis in Italy but prospects for a full-blown trade war put a dampener on gains.

“The uncertainty about future trade and Trump’s contempt for international rules can deal a significant blow to business confidence especially in trade-oriented nations,” said Holger Schmieding, chief economist at Berenberg.

That danger was made all the more real on Thursday when the United States and its key allies announced tit-for-tat tariffs.

A U.S. trade delegation is in Beijing this weekend for a third round of talks between the two countries in the last month after Washington said it would slap tariffs on $50 billion of Chinese imports.

The risk is that a full-blown Sino-U.S. trade war will ripple through global supply chains, hurting economies from Europe to Mexico through to Australia and Japan.

EUROPE LOSING MOMENTUM

Euro zone factory growth stayed strong but slowed to a 15-month low in May, hampered by extra holidays, and forward-looking indicators suggest it will at best remain subdued in coming months, a business survey showed.

Higher prices appear to have hurt demand and IHS Markit’s May final manufacturing Purchasing Managers’ Index for the bloc slipped for a fifth month, falling to a 15-month low of 55.5 from April’s 56.2, in line with a flash reading.

Anything over 50 indicates growth.

German factory growth was also at a 15-month low and French manufacturing activity picked up less than expected, highlighting a more uncertain trade outlook.

British manufacturers bucked the global trend in May and picked up speed for the first time in six months. But the slight improvement masked underlying weakness among the country’s factories.

Chinese manufacturing, meanwhile, has grown steadily so far this year. The Caixin/Markit Manufacturing PMI was unchanged at 51.1 in May, although new export orders fell for a second straight month.

“Forthcoming trade tensions could put pressure on trade and related supply chain activities ... We believe that investment decisions in potentially affected industries have been delayed,” ING China economist Iris Pang said in a note.

The Markit/Nikkei Japan Manufacturing PMI fell to a seven-month low of 52.8 for May, with domestic business growth slowing and only a modest pick up seen in export orders.

Corporate capital expenditure in Japan rose at a slower pace in the first quarter compared with the previous one, a separate report showed. Further stress on exports is likely to restrain any rebound from an economic contraction at the start of the year.

South Korea, another major export hub, reported strong shipment growth in May. But a factory survey found activity contracted for a third straight month as new orders continued to decline, prompting companies to cut staff at the fastest pace in almost a decade.

BUT RATES STILL SET TO RISE

Higher oil prices and a rising dollar have hammered currencies of late, with trade friction and heightened geopolitical uncertainties around North Korea, Iran and Italy adding to pressure.

Economies are seeing inflation flare up while currencies have taken a hit, raising expectations for interest rate hikes.

The European Central Bank will finish its stimulus program by the end of 2018, according to a Reuters poll of economists last month, although nearly half of those surveyed said it was not in control of inflation, which had remained stubbornly below target.

But prices in the bloc rose a faster-than-expected 1.9 percent last month from a year earlier, official data showed on Thursday, pretty much spot on the ECB’s target.

The Bank of England, facing inflation above its target, is expected to raise interest rates in August.

Indonesia’s central bank has already raised rates this year and Indian policymakers might tighten policy soon.

India on Thursday reported its quickest pace of economic growth in nearly two years in January-March and the Reserve Bank of India is expected to hike rates in August — a dramatic turnaround from just a month ago, when a survey predicted no increase until the second half of 2019.