It seems that traditional economic fundamentals do not have the same impact on trade that they used to have. We are now in a politically motivated trade environment, and politics is another matter altogether.
President Trump’s trade war with China and the threat of even higher tariffs in 2019 created a mini-boom in imports as businesses rushed to bring goods into the country ahead of the tariffs. That increased gross domestic product and did much to boost inventories at a time when we would have expected them to fall. The consumer also appears to have reacted to the expectation that prices will rise as tariff rates go up, with personal consumption increasing 0.4 percent – twice the 0.2 percent increase in disposable personal income.
Despite this, we should not lose sight of economic factors that underly this confusing mix of information. The Institute for Supply Management says its Purchasing Managers Index for U.S. manufacturing fell to 57.7 in October, down from 59.8 in September and below market expectations of 59. The reading pointed to the slowest growth in factory activity in six months. This is not a positive sign. As industrial production slows so will imports. If we look at China’s exports, we can see that they benefited from the pre-tariff surge, but the most recent data suggests that this surge has come to an end.
Import growth in 2019 will be weak unless an agreement is reached between the Trump administration and China. If we look at the new U.S. agreement with Mexico and Canada to replace the North American Free Trade Agreement, it does not take much to declare victory.
Despite the import growth through September, the West Coast is feeling the brunt of the tariff war as can clearly be seen in our year-to-date growth tables at the end of this newsletter. The East Coast ports are outperforming the West Coast and Savannah continues to have the highest year-to-date growth rate.