Tennessee Trade Report 4th Quarter 2018

Tables and Graphs

The value of state exports fell by over five percent during the fourth quarter, making it one of the worst quarters in recent memory.  Tennessee far underperformed the nation (total American exports were up by 3.4 percent for the quarter).  With its foreign shipments down by almost $500 million, Tennessee’s exports dropped just below $8 billion. Tennessee ranked only 38th among all American states in its quarterly export performance.

Tennessee’s Fourth Quarter Exports Fell by Almost $500 Million

The fall in exports was surprisingly widespread.  Exports were off in six of Tennessee’s ten largest markets, and were off in nineteen of its top thirty exported goods (at the 6-digit HS level). The major reasons include the slowdown in the global auto industry, the continuation of some supply chain shifts that have bedeviled the state all year, and, in several instances, the impact of retaliatory tariffs.

Automobile shipments were down by just over $100 million. The overall figure hides a huge amount of churn, as electric cars were up by over $30 million and SUVs grew by a more modest $10 million. But hybrid car shipments crashed (sorry), dropping from $54 million in the fourth quarter of 2017 to $5 million last quarter, while cars exports dropped over $100 million over that same period. Most auto parts were relatively flat, though spark-plug engines lost more than half of their exports ($70 million) last quarter.

Losses in the Computer Sector Were Substantial

As we have noted before, Tennessee experienced a very substantial loss in computer exports through all of 2018 due to shifts in production.  Last quarter, computer exports dropped from $382 million to $194 million. This involved both laptops and desktops. Monitor shipments fell as well.  Similarly, shipments of mobile phone parts also declined by $100 million (falling to $212 million for the quarter).

Tariffs are the New Headwind

Tariffs are the newest of the headwinds.  Though the retaliatory actions taken by Canada do not seem to have had much impact on Tennessee exports, the same cannot be said for those imposed by China and the EU.  In both cases, the products suffering from the increased tariffs experienced sizable declines:  fifty percent in the case of China, thirty-three percent in the case of Europe.  In dollar terms, whiskey producers took the biggest hit.  The state’s whiskey exports fell from $197 million to $135 million.  This is extraordinary for a product that, over many, many years, has grown steadily with few reverses.

Of course the quarter wasn’t all bad news.  Several industries stormed ahead.  They were led by aluminum. The shipments of aluminum plates grew 7-fold last quarter (to $105 million).  The export of waste and scrap containing precious metals nearly doubled (to $117 million). Organic chemicals, blank DVDs, and Kraft paper all increased by more than ten percent.  Last but not least, the state’s largest export sector, medical instruments, grew about seven percent (to $722 million).

The Largest Losses Were in Canada and Latin America

Geographically, the state’s losses were largest in Canada and Latin America.  Exports to Canada dropped from $2.26 billion to $1.97 billion mostly due to declines in computer and automotive shipments.  Tennessee exports were also down to every major market in Latin America except Mexico.  Though Mexico was up some $85 million, South America saw its imports from Tennessee fall by $200 million.  Japan and China switched positions last quarter, with the former replacing China as the state’s third biggest market. But that’s only because the Chinese market suffered a much decline than did the Japanese! Hybrid cars, laptops, aircraft, and oak wood were among Tennessee’s exports that experienced a rough ride in China last quarter.

Australia and the UK were the Bright Spots

Among the bright spots were Australia, where state exports climbed from $148 million to $175 million, the UK, where the aircraft, electric battery, and medical instrument sectors powered a very nice gain from $208 million to $273 million in exports. In Europe, Italy was a star (Tennessee exports were up seventy-five percent). But exports overall to the E.U. were little changed though as we noted earlier Tennessee goods facing retaliatory tariffs saw major declines.

Going forward, the issue is how long we can expect the state’s sluggish performance to continue?  An optimistic sign is that January 2019 exports were up from a year earlier. Importantly, the automotive sector turned in very solid numbers.  However the view of most experts is that global automotive sales will struggle next year. That industry may not be alone, as the IMF and other agencies have been reducing their estimations of overall global economic growth in 2019. State exporters will also have to contend with the continuing strength of the dollar, a trend nearly two years old.  A final factor to consider, and a real wild card in the deck, is the future of retaliatory tariffs and if they expand.  The bottom line is that 2019 appears ready to provide plenty of obstacles for Tennessee’s exporters.