“Economic Nationalism”
The President’s September 24th address to the United Nations promoted ‘sovereignty’ above international relations. “The future belongs to sovereign and independent nations, who protect their citizens, respect their neighbors and honor the differences that make each country special and unique.”
His favorite themes? Unfair trade, imbalanced defense spending, illegal immigration, creeping socialism, and China’s “embracing an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers, and the theft of intellectual property and trade secrets on a grand scale”.
Many call this ‘economic nationalism’, an ideology that promotes domestic economic growth and opposes globalization, free trade, and immigration.
Impact on Air and Rail Freight
Since 2016 the retreat from Globalism has had a significant impact on levels of air and rail freight traffic. It has resulted in the Global economy growing at its slowest pace since the 2008 financial crisis (2.9% this year, the smallest annual rise since 2009) .
FedEx recently reduced its 2020 outlook pointing to trade tensions and the ‘weak’ global economy due to the absence of a trade deal with China. The Dow Transportation Average which tracks 20 of the nation’s largest airlines, railroads and truckers (including FedEx) is down 8.8% over the past year. The index of freight shipments maintained by Cass Information Systems Inc. has been falling every month this year with negative volume nine months in a row. The loss of traffic points to a growing downside risk to the economic outlook.
The Shifting Economy
The U.S. expansion has put people back to work. Economists agree the nation is at or close to full employment. But the economy is now dominated by high skill high wage jobs, and low skill low wage jobs. Middle wage jobs are gone. It’s this loss of ‘middle American’ manufacturing jobs that is driving our Nation’s political polarization.
Republican districts hold a growing share of agriculture, mining and low-skill manufacturing jobs while Democratic districts dominate the most productive parts of the country. People have jobs, but they’re not good jobs. Even with our labor markets upended by global trade (and technology) our economic fundamentals remain nearly double that of other developed countries (Europe, Japan, or Britain).
Acting to support continued growth the Fed lowered interest rates by a quarter of a percentage point on September 18th, its second cut since late July, and suggested it was prepared to move aggressively if the economy showed signs of weakening. In Europe the ECB cut its key interest rate and put into place a package of monetary stimulus highlighted by bond purchases. Trade policy remains a question mark and freight traffic continues to be impacted by the lack of a trade deal with China. Energy prices remain volatile as Iranian threats to Saudi Arabia’s oil production continue and shale oil production slows.
Partisan politics may make headlines and political theatre, but our economy is built on principles that encourage enterprise, diversity, individual rights, and fair elections. For now, the economy remains resilient and confidence in the expansion continues. When thinking about transportation investment risk consider the range of possibilities. To be prepared, call RESIDCO.
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