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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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California Exporters Enjoy Upbeat Start to 2018; Trump Tariff Announcement Clouds Outlook

March 7, 2018 - California’s merchandise export trade rose in January, 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 $13.70 billion for the month, a nominal 3.2% gain over the $13.27 billion recorded one year earlier.

The state’s exports of manufactured goods in January slipped by 2.4% to $8.43 billion from $8.64 billion one year earlier. However, exports of non-manufactured goods (chiefly agricultural products and raw materials) increased by 8.3% to $1.72 billion from $1.59 billion. Re-exports, meanwhile, surged by 16.6% to $3.55 billion from $3.04 billion.

“Januarys are historically cursed by hang-overs in more ways than one," said Jock O’Connell, Beacon Economics’ International Trade Adviser. “Trade volumes tend to wilt between December’s holidays and the Asian New Year. Still, a dollar that was 7.7% weaker than at the start of 2017 coupled with solid demand for California specialty crops helped buoy January’s export trade.” Almond exports, for example, were up over 20% from January 2017. 

“Looking beyond the sizable gains reflected in this month’s numbers, the larger story is the latest announcement by the Trump administration regarding trade barriers, in this case tariffs on steel and aluminum,” said Robert Kleinhenz, Economist and Executive Director of Research at Beacon Economics. “This measure and other measures to ‘level the playing field’ both heighten uncertainty about U.S. trade policy and have a chilling effect at a time when foreign trade has the greatest upside potential in years as a result of strength in both the U.S. economy and the economies of its trading partners.”

California accounted for 10.9% of the nation’s overall merchandise export trade in January.

California Imports Increase

The U.S. Census Bureau reports that California was the state-of-destination for 18.3% of all U.S. merchandise imports in January, with a value of $37.30 billion, 6.9% higher than the $34.89 billion in imported goods in January 2017. Manufactured imports totaled $33.11 billion, up 5.5% from $31.39 billion. Non-manufactured imports were valued at $4.19 billion, 19.7% higher than the $3.50 billion recorded one year earlier. (See our caveats about state-of-destination import statistics at the end of this report.)

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., November 2017-January 2018) with the corresponding period one year earlier.

Leading Export Commodities
California's merchandise exports during the last quarter of the year totaled $44.35 billion, a nominal gain of 6.3% from the $41.72 billion during the same period in the previous year. Of the eleven categories of California exports that normally see shipments valued at more than $1 billion in the latest three-month period, nine saw increases.

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 8.3% to $11.63 billion from $10.74 billion.

Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) improved by 12.9% to $4.48 billion from $3.97 billion.

Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) edged higher by 0.9% to $3.24 billion from $3.21billion. Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) gained 10.4%, rising to $3.51 billion from $3.17 billion.

Agricultural exports rose by 14.7% to $4.03 billion from $3.51 billion. Shipments abroad of Food & Kindred goods grew 5.0% to $2.34 billion from $2.23 billion. Exports of Electrical Equipment and Appliances increased 7.4% to $1.87 billion from $1.74 billion.

Exports of Petroleum and Coal Products jumped 45.4% to $1.41 billion from $966 million. Waste & Scrap exports leapt by 37.3% to $1.26 billion from $921 million. Exports of Fabricated Metal Products were up by 7.3% to $1.05 billion from $976 million.. 

On the minus side, the state’s exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) were off by 13.1% to $4.32 billion from $4.97 billion. Exports of Primary Metal Manufacturing products also tumbled by 29.7% to $818 million from $1.16 billion.

Mexico easily maintained its position atop the list of California’s most important export destinations during the latest three-month period. Shipments south of the border grew by 13.6% to $7.22 billion from $6.36 billion. Canada was the state’s second largest export market, growing 14.2% to $4.40 billion from $3.85 billion. Exports to China rose 10.5% to $4.34 billion from $3.92 billion. In fourth place was Japan, which imported $3.31 billion worth of California goods, an increase of 7.7% from $3.08 billion during the same period a year earlier. Hong Kong, which saw its California imports decline by 6.9% to $2.69 billion from $2.89 billion, was nevertheless the state's fifth largest export destination during the November 2017 through January 2018 period.

The state’s export trade with the economies of East Asia edged up by 2.7% to $16.29 billion from $15.86 billion.  By comparison, California’s exports to the European Union rose by 8.4% to $7.94 billion from $7.32 billion.

Emphasizing the economic importance of the North American Free Trade Agreement, Mexico and Canada together accounted for 26.2% of California’s merchandise export trade in the latest three-month period, up from 24.5% one year earlier.

Mode of Transport
The latest three-month period saw 47.4% of the state’s $44.35 billion merchandise export trade depart by air, while waterborne transport carried 29.9% of the outbound trade.

The Outlook
President Trump’s decision to impose tariffs on imported steel and aluminum is just the latest salvo in the administrations aggressive trade agenda. Hardline trade hawks currently have the upper hand in the White House, although the President is facing resistance within his own party and by a wide range of important industries, especially those which utilize steel and aluminum in their products.

To date, California brands have escaped threats of retaliation on the part of U.S. trade partners. That said, the current trade climate undoubtedly increases policy uncertainty at a time when other aspects of the economy are doing well, and may result in higher prices for California households and businesses in the months to come.

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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