Devaluing renminbi keeps cost of American imports high
The simmering trade war between the United States and China is the greatest ongoing risk to commercial vehicle forecasts, according to ACT Research.
In addition to matching U.S. tariffs on Chinese goods, the Chinese use their renminbi currency (RMB) to make American imports more expensive.
“Since the first ‘shots’ of the trade war were fired on March 1, 2018, the RMB has fallen 12 percent versus the U.S. dollar,” said Kenny Vieth, ACT president.
The most recent 3 percent devaluation further offset the impact of U.S. tariffs.
“The bigger risk, especially to emerging economies is that in order to compete with China, they will have to devalue their currencies, making U.S. goods more expensive in more countries and raising the risk of a deeper global downturn,” Vieth said.
Slowing freight growth and an overabundance of trucks are major contributors to the present trucking sector recession. Spot rates for freight are at 2017 levels, erasing double-digit gains from a truck capacity shortage in 2018.
Fleets placed record orders for equipment in the second half of 2018. The backlog of orders is falling as retail sales of Class 8 tractors climb, surpassing 25,000 in July, according to WardsAuto. New truck and trailer orders are down year-over-year for eight consecutive months.
Several truck manufacturers have warned of production cuts in the second half. Navistar International Inc. (NYSE:NAV) confirmed cutbacks in its medium-duty plant in Springfield, Ohio on August 15.
The on-again, off-again trade dispute led to the pull-ahead of Chinese imports in the third quarter of 2018 to beat an expected increase in tariffs scheduled for January 2019.
That crowded West Coast warehouses with goods that would have arrived over several months. The latest threat of 10 percent tariffs on an additional $300 billion in Chinese products has been delayed until December 15 after President Donald Trump initially planned to impose the new tariffs on September 1.
“The next step is a move to 25 percent tariffs” on the $300 billion in Chinese consumer goods,” Vieth told FreightWaves. “So, the manufacturers of seasonal goods need to get as many lawnmowers and lawn chairs into the U.S. by the end of the year before the other shoe falls.”
The issues for freight movement extend beyond tariffs, according to FreightWaves Chief Economist Ibrahiim Bayaan.
“There are other concerns in the global economy aside from trade conflicts, including the possibility of a hard Brexit and structural issues in China,” he said. “A broad escalation in trade conflicts that include non-tariff measures with China would significantly hurt the global economy and hurt freight movements of nearly every kind.”