Tennessee Trade Report 2nd Quarter 2018

Tables and Graphs

Tennessee shipments to Canada dropped almost $400 million for the quarter, a 15 percent loss in the state’s largest market.

Tennessee exports rose to $8.526 billion in the second quarter, a gain of $86 million over the second quarter of 2017. Comparatively, this was a weak performance. The state’s 1 percent growth compares unfavorably with America’s 11.2 percent growth over this same period. Indeed, Tennessee ranked 43rd among the American states in its export performance. The reason for this can be summed up in one word: Canada. Tennessee shipments to Canada dropped almost $400 million for the quarter, a 15 percent loss in the state’s largest market. Without Canada, the quarter’s exports would be roughly in line with the rest of the U.S.

So what happened in Canada? Large declines in automotive and computer shipments. The export of cars fell from $468 million to $374 million. A number of automotive goods also suffered steep declines, auto engines in particular (down almost $100 million). If cars were bad, computers were worse. Computer shipments to Canada dropped from $284 million to $51 million, a loss of more than $200 million. As we noted in the last quarterly report, this is due to supply chain changes, and the state’s export statistics are going to reflect this for the next several quarters. Nevertheless, it places quite a drag on the state’s export numbers. Several other products also performed poorly last quarter in Canada, notably TV equipment and DVD sales. A single bright spot was the continued growth in electric vehicle exports. These were up almost 40 million. But the bottom line was a loss of $376 million in state exports to Canada.

Fortunately the rest of the world proved a much better market. State exports, excluding Canada, were up 7.6 percent. The quarter’s good news begins south of the border. Shipments to Mexico were up over 6 percent (to $1.268 billion). South America purchased 9 percent more Tennessee goods than in 2017. The state survived a modest drop in sales to Brazil because of solid gains in Colombia and Peru. As might be expected, exports to Venezuela have all but vanished. Tennessee once exported 7 to 8 million dollars in goods per month to Venezuela. That total is now well below $100,000.

A surge in car exports to Saudi Arabia and the United Arab Emirates led the Arabian Gulf to the top of Tennessee’s export destinations. Shipments to this region gained 53 percent over the previous year. Thanks to cotton, exports to nearby Turkey and Pakistan also grew substantially.

The European market was flat ($1.246 billion vs. $1.23 billion a year earlier), despite a large decline in medical instrument shipments. Chemicals and waste and scrap sales made up the difference. Exports to Italy, the site of most of the waste and scrap shipments, grew over $60 million, making it one of the continent’s best markets for Tennessee exporters. Germany, on the other hand, lost $16 million, mostly due to the collapse of the state’s silicon exports. Outside of the euro area, growth in electric batteries and medical instrument shipments led to a 17 percent export gain in the UK.

In Asia, the Chinese market continued strong. Exports to China were up $45 million, while those to Hong Kong gained another $40 million. Combined, the state shipped $864 million in goods to the two. Japan was up more modestly (2.7 percent, to $488 million). The gain in Japan rested on increases in orthopedic and pharmaceutical exports. Korea, on the other hand, fell 13 percent last quarter. A sizable gain in auto sales was more than eliminated by declines almost across the board in the state’s other exported goods. In Southeast Asia, exports to Singapore were up 10 percent, thanks to substantial growth in medical instrument and orthopedic shipments. Vietnam also continued to grow as a significant market for the state. There, Tennessee’s exports stood at $92 million for the second quarter, a 25 percent gain. Last quarter, Vietnam was Tennessee’s 17th largest market. Five years ago, it was number 30.

Sectorally, most of the state’s export industries turned in quite solid numbers for the quarter. There were three big exceptions. Computers, thanks again to Canada, dropped from $437 million to $200 million in the value of exports. Silicon exports collapsed, from $98 million to essentially zero. However, this is a bit fluky, because the primary cause was the temporary closure of the state’s major production facility. And automotive engines saw a loss of $77 million, a full third of its 2017 second quarter shipments. Many other industries, including polyesters, kraft paper, orthopedics, and cotton, all posted significant gains.

Going forward, and to repeat from last quarter, Tennessee numbers are going to look very mediocre until the large loss in the state’s computer exports works its way through. Elsewhere things look relatively healthy, though the state’s two largest export sectors, medical instruments and motor vehicles, did not have particularly great quarters. The biggest coming threats for state exporters are going to be the health of the emerging market economies and the impact of the growing U.S. trade war with China. Neither of these, unfortunately, appear to be in the state’s hands!