The Trade Numerologist: After Hurricane Florence, a Need for Imports
This column is based on data from Global Trade Atlas.
After the deluge, the rebuild.
As Hurricane Florence marched up the US East Coast this weekend, killing at least 16 people and wreaking havoc with unrelenting rain and flooding, residents, politicians and planners are trying to figure out the cost of the damage.
Total insurance claims are expected to be around $20 billion, and the overall economic impact on the US could be as high as $180 billion, making it one of the costliest storms on record. The most expensive hurricane, Katrina in 2005, cost the US $150 billion. This is the Age of the Hurricane: Three of the costliest in US history - Harvey, Irma and Maria - hit last year.
Once again, the effects on the most impacted states - this time Virginia, Georgia, and North and South Carolina -- are sure to be wide-ranging, ruining homes, farms, stores and infrastructure.
One thing is certain. To have enough material and keep costs down by offering less expensive alternatives, the US will need imports, now more expensive because of higher tariffs. Although the country produces plentiful quantities of materials like wood, steel and glass, it's also one of the biggest import markets for those key construction materials.
Top US sources of wood, first 7 months, 2018
- Canada $5.6 billion (+8.4%)
- China $2 billion (-1.5%)
- Brazil $625.2 million (+18.5%)
- Chile $426.5 million (+5%)
- Indonesia $296. 5 million (+62.6%)
- Germany $287.1 million (+78%)
- Mexico $187.6 million (+12%)
- Vietnam $112.8 million (+74%)
- Russia $106 million (+12%)
- Malaysia $103 million (+30%)
Although it's relatively easy to ship wood within the US, there are also more localized markets. For example, on the East coast, where the hurricane hit, Sweden, not a big exporter to the US, is among the top sellers of construction wood to US buyers, in large part via furniture chain IKEA, sure to increase sales as homeowners restock.
North Carolina's top sources of construction wood, first 7 months, 2018
- Canada $159.4 million
- Sweden $38.3 million
- Chile $4.9 million
- Ecuador $2.8 million
- Brazil $2.6 million
- Finland $2.3 million
- Germany $1.8 million
The biggest beneficiary of US rebuilding efforts is expected to be Canada. Despite tariffs on timber, steel and aluminum, the country is still the biggest supplier of building materials into the US.
For example, the country is the number one seller of copper wire to the US, thanks to companies like Deca Cables and Domtech.
Top sources of copper wire, first 7 months, 2018
- Canada $687.6 million (+55%)
- Mexico $73.7 million (+61%)
- Peru $26.2 million (+49%)
- Germany $23.1 million (+39%)
- Japan $19.6 million (+13%)
- China $16.6 million (+19%)
- South Korea $7.8 million (+3.5%)
- France $7.6 million (+14%)
- Turkey $7.3 million (+39%)
- Finland $7.3 million (-21%)
The main impact will be on homes. According to an analysis by real estate analytics firm CoreLogic, the total rebuilding cost of around 750,000 homes that could be hit by Florence could be over $150 billion.
One factor inflating the tab: tariffs. The US has imposed new duties on over a hundred billion dollars of imports this year. Open markets keep domestic producers more efficient by forcing them to offer prices that are competitive with those of foreign competitors. Duties mean they don't have to.
For example, the US has a multi-billion glass industry, which the Trump administration protected this year with tariffs on imports from China, the industry's top competitor. The tariffs mean US shops can charge more, and that's likely to force up prices as the US Southeast rebuilds after Florence.
Top US sources of glass, first 7 months, 2018
- China $1.8 billion (+11%)
- Mexico $761.2 million (+8%)
- Germany $348.2 million (+1%)
- Canada $246.9 million (flat)
- France $169.2 million (+14%)
- Japan $164.8 million (+3%)
- Taiwan $164.5 million (+17%)
- Italy $120 million (+21%)
- India $67.9 million (+2%)
- South Korea $57.4 million (+8%)
Construction material and equipment sellers like Home Depot and Lowe's will improve their bottom lines as contractors buy materials to fix and rebuild homes.
Another sector that will benefit from the reconstruction: scrap merchants.
The damage from the hurricane is expected to increase supply of used materials. Metal from the hurricane is likely to boost US scrap exports, which have recovered in the last few years after dropping steeply earlier this decade.
US scrap iron and steel exports, first 7 months
- 2009: 13 million tons
- 2010: 11.3 million tons
- 2011: 14.2 million tons
- 2012: 13.2 million tons
- 2013: 11.1 million tons
- 2014: 8.9 million tons
- 2015: 7.6 million tons
- 2016: 6.7 million tons
- 2017: 8 million tons
- 2018: 10 million tons
As they pick up debris and fix their homes, people hit by Florence will have to recover in other ways. Water supplies could be tainted. Stores and shopping malls are expecting hundreds of millions of dollars in lost sales. An analysis by an automotive consultancy expects that tens of thousands of automobiles will need to be replaced. The hurricane will also hurt important parts of the economy like shipping and North Carolina's hog industry.
US secretary of commerce Wilbur Ross last week estimated the storm could cost the US one percent of its gross domestic product. "We have an $18 trillion economy, so one percent of $18 trillion would be $180 billion. That's a pretty big number," he said.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
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