Tariffs Starting to Slow Economic Growth, ATA Economist Says

November 01, 2018 by Alan Adler, @AlanAdler

The trade dispute between the U.S. and China is beginning to slow economic growth and could cut into the surging profits enjoyed by the trucking industry this year.

That’s the analysis of Bob Costello, the chief economist for the American Trucking Associations who heads the group’s international trade arm. Costello made his remarks at the ATA Management Conference and Exhibition in Austin, Texas, earlier this week, touching on myriad issues affecting the future of the trucking industry, including tariffs.

“The longer the tariffs go on, the more impact they will have on the economy,” Costello said. “Hopefully, it’s a negotiating tactic.”

But, he said, if the tariffs on steel, aluminum and a range of other products jump from the current 10 percent to 25 percent on Jan. 1, 2019, as threatened by President Donald Trump, the impact could reverse economic gains from business tax cuts that took effect this year.

American Trucking Associations chief economist Bob Costello says the U.S.-China trade war is taking root and will damage the economy

American Trucking Associations chief economist Bob Costello says the U.S.-China trade war is taking root and will damage the economy. (Photo: Alan Adler/Trucks.com)

“I’m not saying it would throw us into a recession, but it certainly could lower the rate of growth,” Costello said. “It takes two to tango, and so far, the Chinese have not been willing to dance.”

There is evidence that the trade stalemate with China is taking root, Costello told Trucks.com.

For example, no U.S. soybeans were exported to China last week, he said. During the first seven weeks of the export season, shipments to China dropped 97 percent, according to the U.S. Department of Agriculture.

If the 25 percent tariff on autos takes effect, there could be severe economic pain for the part of the trucking industry that moves vehicles from ports to dealerships.

Diesel engine manufacturer Cummins Inc., which supplies much of the trucking industry globally, predicted that higher tariffs could cost the company $250 million next year. The additional taxes on steel and aluminum cost the company $80 million through the first nine months of this year, Cummins said during an earnings call Tuesday with industry analysts.

Despite the economic fallout of tariffs, the trucking industry is generally in good shape, Costello said.

Rates look to remain strong because of an ongoing shortage of trucks to haul goods. Motor carriers are placing record new-truck orders, but many of those vehicles will replace older semi-tractors. One-for-one replacement does not grow the trucking business, Costello said.

The amount of freight hauled by trucks is on pace to grow 4.2 percent this year compared with the same period a year earlier. A rebound in manufacturing industries and a healthy economy are behind that growth. Trucking accounted for $672 billion and nearly $8 of every $10 spent on freight shipments in 2017.

Motor carriers need to brace for higher diesel prices in 2020, when an international rule takes effect that bans high-sulfur fuel in ocean shipping. That will create more demand for diesel fuel used in trucking. Costello did not offer a prediction as to how high prices will climb. Diesel should end this year at an average of $3.20 a gallon, he said. It currently sells at $3.35 a gallon.

Read Next: ATA Pressing Gas Tax Increase to Fix Crumbling Roads and Bridges

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