Welcome to the California Trade Report, Beacon Economics’ monthly analysis of California’s international trade activity. This report analyzes data released by the U.S. Census Bureau’s Foreign Trade Division and pinpoints important trends in the state’s import/export industry, identifying potential effects on the state’s economy. The report is only a sampling of the kind of economic research and data analysis available from Beacon Economics.
January 6, 2017 - California’s merchandise export trade continued its late year growth spurt in November by posting a nominal 12.1% gain over the same month one year earlier, according to Beacon Economics’ analysis of U.S. trade statistics released this morning by the U.S. Census Bureau.
Foreign foreign shipments by California businesses totaled $14.41 billion for the month, a healthy increase over the $12.86 billion recorded in November 2015.
"California trade is closing out 2016 on a strong note,” said Robert Kleinhenz, Economist and Executive Director at Beacon Economics. “Despite the uncertainty about the future direction of U.S. trade policy with the incoming Administration, California’s trade picture should maintain its current course at least through the first part of the new year."
The state’s exports of manufactured goods in November increased by 10.0% to $8.91 billion from $8.10 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) jumped 19.2%, to $2.11 billion from $1.77 billion. Re-exports, meanwhile, rose 13.8% to $3.39 billion from $2.98 billion.
By way of comparison, the nominal value of overall U.S. merchandise exports in November edged up just 2.3%, while exports from Texas gained 2.6% over last November.
“November saw double-digit increases in all of California's major export categories except chemicals, which declined by 1.2% from the previous November,” said Jock O’Connell, Beacon Economics’ International Trade Advisor.
Exports to California’s major trading partners in East Asia saw a healthy 17.4% jump in November, while shipments to European Union countries slipped by 1.0%. Exports to Mexico, California’s leading export market, were up 5.4%. while exports to Canada (California’s #2 export destination) fell 5.1%.
The gains were reflected in the increased volume of outbound traffic at the state’s principal international trade gateways. Export tonnage at Los Angeles International Airport and San Francisco International Airport were up a combined 11.1%. Meanwhile, the number of outbound loaded containers sailing from the Ports of Los Angeles, Long Beach, and Oakland grew by an almost identical margin (11.2%) over November 2015.
The U.S. Department of Commerce has determined that California was the state-of-destination for 18.7% of all U.S. merchandise imports in November, with a value of $37.96 billion, up 5.1% from the $36.11 billion in imported goods in November 2015. Manufactured imports totaled $35.02 billion, an increase of 6.4% from $32.91 billion last year. Non-manufactured imports in November were valued at $2.94 billion, 8.1% lower than the $3.20 billion recorded a year earlier.
A Closer Look At The Numbers
As always, Beacon Economics cautions against reading too much into month-to-month fluctuations in state export statistics, especially when focusing on specific commodities or destinations. Significant variations can occur as the result of unusual developments or exceptional one-off trades and may not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months for which data are available (i.e., September-November) with the corresponding period one year earlier.
California's merchandise exports during the latest three-month period totaled $43.27 billion, a nominal gain of 4.0% from the $41.61 billion recorded during the same period last year.
On the plus side, exports of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) grew by 3.9% to $11.29 billion from $10.86 billion. The state’s exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) remained essentially unchanged at $5.08 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) jumped 18.4% to $3.72 billion from $3.14 billion. Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) moved up by 4.9% to $3.66 billion from $3.48 billion.
Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) fell 1.4% to $3.36 billion from $3.40 billion. Agricultural exports were up 14.9% to $4.21 billion from $3.66 billion, while foreign shipments of Food & Kindred goods edged up 0.4% to $2.26 billion from $2.25 billion.
Mexico remained California’s most important export destination during the latest three-month period, although the value of the state’s shipments south of the border fell by 2.6% to $6.67 billion from $6.85 billion. Exports to Canada remained disappointing, slipping 1.9% to $4.23 billion from $4.31 billion, while shipments to China rose 9.4% to $3.70 billion from $3.39 billion. Exports to Japan strengthened, rising by 9.9% to $3.16 billion from $2.88 billion. Hong Kong, up by 16.6% to $3.06 billion from $2.62 billion, rounded out the list of California’s Top Five export markets.
The state’s export trade with the economies of East Asia increased 4.9% to $15.96 billion from $15.22 billion. By contrast, California’s exports to the European Union moved down by 2.3% to $7.45 billion from $7.63 billion. Mexico and Canada, America’s partners in the North American Free Trade Area, accounted for 25.2% of California’s merchandise export trade in the latest three-month period.
By mode of transport, 46.7% of the state’s $43.27 billion merchandise export trade during the most recent three months went by air, while waterborne transport carried 30.1%. The balance travelled overland to Canada and Mexico.
Prospects for a continuation of harmonious relations with California’s principal trading partners were dealt further setbacks by the appointment of Peter Navarro to head a new National Trade Council and by the nomination of Robert Lighthizer as U.S. Trade Representative. Both have exhibited a peculiar animus toward China, and neither is likely to restrain President-elect Donald Trump from pursuing aggressive measures aimed at slashing U.S. merchandise trade deficits with China and Mexico.
Beacon Economics believes the incoming administration’s focus on the trade deficit with China is misconstrued and over-wrought. A large portion of what is reported as a deficit with China is really an artifact of economic accounting practices that ignore the foreign content in many goods the U.S. imports from China. Apart from depriving American consumers of a vast array of goods essential to our lifestyles, slamming the door on Chinese imports would increase our trade imbalances with other nations.
The fact is the United States has not consistently run a surplus in its merchandise trade since 1970, and the last surplus was recorded in 1975. The country seems to have done rather well since.
Still, the coming Trump administration looks poised to follow through on the President-elect’s muscular rhetoric. What happens next?
In an opinion piece in the January 2, 2017 issue of the Los Angeles Business Journal, we suggested that Trump’s hardball tactics could produce a salutary outcome, but only if our trading partners appreciate the extent to which their economic fortunes depend on ready access to U.S. consumers. China, as we pointed out, remains an export-driven economy that has more at stake than the United States does in any trade dispute.
Note: The U.S. Commerce Department has been publishing state-of-destination import statistics since 2008. Beacon Economics has long felt that state import data provide a highly misleading indication of the state in which imported goods were ultimately consumed. As a major gateway for the nation’s foreign trade, California has consistently been credited with an out-sized share of U.S. merchandise imports. However, we now believe that the process by which state-of-destination import statistics are compiled has become stable enough to be used to measure relative increases or decreases in the value of imported goods consumed or otherwise used by residents or businesses located in California. We emphasize that we are primarily interested in determining trends. We continue to think it highly inadvisable to combine state export and import statistics to calculate a state trade balance.
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