In a global market, equipment (including aero and rail) investment successes come not only from corporate strategy and execution but also from a nation’s competitive advantage. A country’s national leaders are responsible for crafting and executing strategies that maintain global economic dominance. On the worldwide stage, free markets will allocate capital efficiently, but have not resulted in mutual and equal prosperity. Trade benefits those with the best “competitive” advantages. In The Art of War, military strategist Sun Tzu wrote that the best strategy is one where you win without firing a shot.
We should not expect China to embrace Western democracy or fully open its markets, as doing so would destabilize its Communist Party leadership. Xi Jinping’s strategy has been to absorb U.S. technology, strip businesses from other countries, and replace foreign corporations with domestic ones. Self-interest[1] has driven China’s leaders to target large-scale industrialization and develop and control their domestic markets by using regulations and subsidies that advantage Chinese firms. Examples include the development of the ARJ21 (aka the C909, a 78-90 seat regional jet) and the C919, China’s first domestically[2] produced narrow-body aircraft, which is meant to replace the Boeing 737 and Airbus A320. COMAC intends to produce 200 C919 jets annually by 2029 to challenge the Boeing-Airbus duopoly. Beijing’s Communist Party has directed its national airlines to withhold new orders, not accept any more Boeing aircraft deliveries, and pause purchases of aircraft-related components and equipment from the U.S. Xiamen Airlines recently returned two Boeing 737-8 aircraft, unable to pay a 125% retaliatory tariff on U.S. goods imported into China.
With limited access to Chinese domestic markets, the value of foreign investment will vaporize. While the administration announced a 90-day suspension of additional tariffs beyond the baseline 10% tariff applicable to most countries (except China), fluctuating tariff policies have created challenges as businesses navigate a constantly changing landscape. United Airlines, during its April 15, 2025, Investor Update, stated “bookings have been stable” but then offered two separate possible macroeconomic expectations. “Either the U.S. economy will remain weaker but stable, or the U.S. may enter a recession,” and “If demand drops, new routes and bigger planes will be put on hold.”
U.S. retail sales were up 1.4% in March, the most significant monthly gain since January 2023. The uptick was largely attributed to consumers making big-ticket purchases ahead of expected tariffs. Motor vehicles and parts increased by 5.3%, with additional increases in electronics, sporting goods, clothing, groceries, and online retail. For the first 15 weeks of this year, U.S. railroads reported a cumulative volume of 3,219,891 carloads, up .9% from the same period last year, and 4,088,865 intermodal units, up 8.5% from last year. Although market uncertainty and trade policy changes increase the range of possible outcomes, CSX expects rail volume growth for 2025[3]. Tariffs, CSX said, will likely lead to more North American business. “East Coast ports can expect benefits from decoupling from China.” CSX is already seeing increased output from U.S. steel mills with positive trends in construction activity, chemicals, plastics, and agriculture, all a plus for rail volumes.
The Federal Government borrowed $1.3 trillion more than it took in the first six months of this fiscal year (a gap 23% wider than in the same period a year earlier). A weaker dollar and Treasury market volatility[4] has made hard asset Aero and Rail investment more attractive. Call RESIDCO.
Glenn Davis 312-635-3161
[3] For CSX, a difficult first quarter. CEO Joe Hinrichs, CSX, Railway Age, April 17, 2025.
[4] Markets Defy Dollar’s Haven Status as Risk Assets Plunge, Wall Street Journal, April 18, 2025.
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