Tennessee Trade Report 3rd Quarter 2018

Tables and Graphs

Supply chain changes in the computer sector have led to a large drop in shipments of laptops and desktops to Canada.

Third quarter Tennessee exports reached $8.323 billion, a meager .06% increase from a year earlier. Meanwhile, total American exports grew 7.4% for the quarter with Tennessee ranking only 34th among American states in its export performance. A big part of the problem behind the state’s mediocre performance lay in the computer sector, where supply chain changes have led to a large drop in shipments of laptops and desktops to Canada. If we excluded this sector, the state would have seen 2.6% export growth. Better, but still lagging appreciably behind the nation’s.

The State’s Largest Export Sectors Grew Slowly

The oddity is that the state’s largest export sectors were the ones with the slowest growth. Most of the state’s smaller export industries performed just fine, thank you. In addition to computers, autos and auto parts, medical instruments, aircraft, plastics, and cotton—most of Tennessee’s traditional big export products—all grew very slowly (at best) this past quarter. The auto industry is clearly feeling the impact of the new trade tensions. Hybrid cars, which have lately been a large export to China, fell dramatically. But cooling North American auto sales are also having an impact, which led to a sizable decline in exports to Canada as well. Medical instrument shipments, for some time the state’s single largest export sector, suffered substantial drops in Japan and the E.U. It managed to eke out a small net gain for the quarter only due to substantial gains to Singapore and the U.K. Singapore actually became the state’s top market for its medical goods. Artificial filament tow, the major plastic, and cotton were down almost across the world. Whether this is signaling a global slowdown in the textile industry or whether it is a supply chain factor is unclear.

Tennessee was hurt, in addition, by the collapse of its silicon exports. This was more due to a plant closure than anything else. But here, too, trade conflicts are involved, as most silicon is going into solar panel production.

We noted that several smaller sectors, though, did very well last quarter. Aluminum plate exports soared from $15 million in the third quarter of 2017 to $91 million last quarter. Most of this went to Mexican auto production. Again, the impact of the U.S. aluminum tariffs was a factor. Kraft paper turned in another strong quarter. Tennessee shipments of corrugated cardboard (as the product is better known) are mostly going to Mexico, but exports have increased to South and Central America. Pharmaceuticals were also strong. Even stronger were immunological products (vaccines and such), foreign shipments of which ramped up dramatically this August and September. In fact, by September Tennessee had become the third-largest exporting state, behind only Massachusetts and California, for these products. All of these exports, by the way, are going to either Ireland or Italy.

Sizable Reverses Suffered in Japan

Geographically, Asia, recently the best market for state exporters, was a very mixed bag. Exports to southeast Asia were up more than 10% (to $583 million) with sizable gains in Singapore and Vietnam. China, Hong Kong, and South Korea were all up slightly, but Japan’s imports of Tennessee goods dropped almost $200 million dollars last quarter. This was enough to wipe out all the gains made elsewhere in the continent. The Japanese decline was across the board, not restricted to a few export sectors.

Exports to South America fell about 10%, while shipments to continental Europe were unchanged. (Exports to the U.K., however, were up almost one-quarter.) While South America was bedeviled by the Argentine and Venezuelan economic collapses along with political instability in Nicaragua, the real problem seems to be the strength of the dollar. Exports were modestly down to Chile and to Brazil as well as to the countries in more dramatic economic difficulty.

For the NAFTA (USMCA?) countries, the large drop in computer exports to Canada (from $247 million to $86 million) led to a net loss of exports north of the border. Mexico, on the other hand, took in about $100 million more in exports last quarter than it had a year previously. Aluminum plates were at the heart of the gain, but diesel engine and auto exports also played a significant role.

It’s Disappointing Tennessee Couldn’t Match This Quarter’s National Export Performance

We certainly don’t want to overplay the state’s export difficulties. After all, quarterly exports grew about $50 million in the third quarter. Moreover, a big part of the problem is that one-time production decision that has led to a steep loss in computer exports to Canada all year long. But it’s hard not to be disappointed by Tennessee’s failure to grow its exports at the national average. We can hope this turns around, but what with a trade war, a rising dollar, and worries that global economic growth is faltering, there will be plenty of headwinds to deal with in coming months.