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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.

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CA Exporters Enjoy 'Pre-Trade-War' Surge

July 6, 2018 - California’s merchandise export trade powered through May with an impressive surge, according to a Beacon Economics analysis of U.S. trade statistics released this morning by the U.S. Census Bureau.

Foreign shipments by California businesses totaled $15.15 billion for the month, a nominal 12.3% gain over the $13.49 billion recorded one year earlier.

The state’s exports of manufactured goods in May were up 14.6% to $9.83 billion from $8.58 billion in May 2017. However, exports of non-manufactured goods (chiefly agricultural products and raw materials) slipped 1.7% to $1.74 billion from $1.77 billion. Re-exports, meanwhile, grew by 13.7% to $3.57 billion from $3.14 billion.

California accounted for 10.5% of the nation’s overall merchandise export trade in May.
“Traders eager to stock up on California products at pre-tariff prices helped propel May’s jump in merchandise exports,” said Jock O’Connell, Beacon Economics’ International Trade Adviser.

Slight Increase In California Imports
The Census Bureau reports that California was the state-of-destination for 18.6% of all U.S. merchandise imports in May, with a value of $37.28 billion, only 0.2% higher than the $37.21 billion in imported goods in May 2017. Manufactured imports totaled $33.03 billion, down 2.1% from $33.72 billion. Non-manufactured imports were valued at $4.26 billion, 22.1% higher than the $3.49 billion recorded one year earlier. (If attempting to calculate a California state trade balance, please see our caveats about state-of-destination import statistics at the end of this report.) 

“Efforts on the part of exporters and importers to get ahead of trade restrictions and ship their merchandise now will help the state’s economic performance in the near term, but the subsequent pullback in trade will be a drag on the economy in future months,” said Robert Kleinhenz, Executive Director of Research at Beacon Economics.

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., March-May) with the corresponding period in the preceding year.

Leading Export Commodities
California's merchandise exports during the March-May period totaled $46.09 billion, a nominal gain of 8.6% from the $42.45 billion in the same three-month period one year earlier.

On the plus side, shipments of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) moved up by 6.8% to $11.34 billion from $10.62 billion. The state’s exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) rose 7.0% to $5.26 billion from $4.92 billion.

Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) improved by 12.5% to $4.95 billion from $4.40 billion. Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) ran higher by 10.6%, increasing to $3.67 billion from $3.32 billion.

Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) gained 4.7% to reach $3.52 billion from $3.36 billion. Shipments abroad of Food & Kindred goods grew 8.1% to $2.44 billion from $2.26 billion. Exports of Electrical Equipment and Appliances increased 15.9% to $2.10 billion from $1.81 billion.

Exports of Petroleum and Coal Products leaped 35.9% to $1.33 billion from $975 million. Waste & Scrap exports roared ahead by 34.1% to $1.28 billion from $952 million. Exports of Fabricated Metal Products improved by 3.8% to $1.14 billion over $1.10 billion. Shipments of Used or Second-hand Merchandise soared by 28.7% to $1.06 billion from $826 million.

On the minus side, Agricultural exports slipped by 2.0% to $3.25 billion from $3.31 billion. And exports of Primary Metal Manufacturing products tumbled 20.5% to $879 million from $1.11 billion.

Mexico improved its position as California’s most important export destination during the most recent three-month period. Shipments south of the border expanded by a vigorous 22.8% to $7.88 billion from $6.42 billion. China took second place among the state’s largest export markets, with shipments increasing 15.2% to $4.77 billion from $4.14 billion. Canada placed third with $4.47 billion, up 7.3% from $4.17 billion. Next came Japan, which imported $3.37 billion worth of California goods, a slight decline of 0.6% from $3.39 billion during the same period one year earlier. Exports to South Korea rose 8.9% to $2.89 billion from $2.65 billion. And Hong Kong saw its California imports plummet by 17.4% to $2.20 billion from $2.66 billion one year ago.

Despite the healthy growth in exports to China and South Korea, the state’s overall export trade with the economies of East Asia rose by just 4.0% to $16.81 billion from $16.16 billion. Meanwhile, California’s exports to the European Union were unchanged at $7.95 billion.

Attesting to the great importance to California of the North American Free Trade Agreement(NAFTA), Mexico and Canada together accounted for 26.8% of California’s merchandise export trade in the latest three-month period, up from 24.9% in the same period one year ago. Exports to the nation’s two neighbors rose in value by a remarkable 16.7% in the latest three-month period over the same period last year.

Mode of Transport
The latest three-month period saw 47.0% of the state’s $46.09 billion merchandise export trade depart by air, while waterborne transport carried 29.5% of the outbound trade. The balance of the state’s exports moved overland.

The Outlook
Since our report last month, the outlook for California exports has certainly dimmed. Apart from the confrontational trade policies of the Trump administration toward China, Mexico, Canada, the European Union, and the World Trade Organization, growth in international trade has been showing signs of decelerating as a result of slowing economic growth in much of the world.

More immediately, the U.S. and China have now imposed new tariffs on $34 billion worth of goods that each normally exports to the other. Given that there is no news of any serious efforts to negotiate a solution to rising trade tensions, we are not at all sanguine about the two sides backing off from threats to erect additional trade barriers involving ever broader categories of goods. California products already facing Chinese tariffs include fruits, nuts, and wines. According to the California Almond Board, May’s almond shipments to China and Hong Kong were off slightly more than half from the same month last year.

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. (January 2018 statistics, for example, indicate that California is the destination of 18.3% of all merchandise imports and 19.1% of all manufactured 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 strongly emphasize that we are solely interested in identifying trends. We continue to believe it is not useful to use state export and import statistics to calculate a state trade balance.

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