July 3, 2024
California Trade Report
Beacon Economics’ monthly analysis of California’s international trade activity
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.
CALIFORNIA EXPORTS TREAD WATER IN LATEST NUMBERS
California’s merchandise export trade in May was nominally valued at $15.796 billion, a 5.4% gain over the $14.990 billion recorded in the same month a year earlier, according to a Beacon Economics’ analysis of official trade statistics released this morning by the U.S. Census Bureau’s Foreign Trade Division.
U.S. exports meanwhile increased by 3.9%. As a result, California’s share of America’s merchandise export trade edged up to 9.1% from 9.0% a year ago. In the pre-pandemic May of 2019, California’s share of the nation’s merchandise export trade was 10.8%.
Exports of California manufactured goods in May improved by 2.7% year-over-year to $9.955 billion from $9.697 billion. Meanwhile, the state’s exports of agricultural products and raw materials were up 6.8% in nominal terms to $2.016 billion from $1.888 billion.
Re-exports jumped by 12.3% to $3.825 billion from $3.405 billion last May. The Golden State’s exports in the first five months of 2024 amounted to $73.290 billion, down 0.1% from $74.021 billion the state’s industries had shipped abroad through this point last year.
“Remarkably, California’s export trade rose in May despite the strong dollar, a 54.2% fall-off in foreign shipments of electric vehicles, and the plunging value of the state’s exports of petroleum products,” observed Jock O’Connell, Beacon Economics’ International Trade Advisor.
California Imports Increased in May
The U.S. Commerce Department reports that California was the state-of-destination for 14.6% of all U.S. merchandise imports in May, with a value of $40.272 billion, a 6.8% increase from the $37.717 billion in imported goods in May 2023. Manufactured imports this May totaled $35.551 billion, a 7.6% bump from $33.030 billion a year earlier. Non-manufactured imports were valued at $4.721 billion, up 0.7% from the $4.687 billion in non-manufactured imports the state absorbed in May 2023.
Please note that Beacon has long taken a skeptical view of the federal government’s state-of-destination statistics. The data’s fundamental shortcoming is that they capture not just goods that are consumed by California residents or used by California businesses but also a sizeable quantity of imported merchandise that is offloaded at California ports but is bound for markets elsewhere in the country.
A CLOSER LOOK AT THE NUMBERS
As always, Beacon Economics advises 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 due to unusual developments or exceptional one-off trades and may not be indicative of underlying trends. For that reason, Beacon compares the latest three months for which data are available (i.e., March-May) with the corresponding period one year earlier. Please note that the numbers cited below are nominal values.
LEADING EXPORT COMMODITIES
California’s merchandise exports during the latest three months totaled $45.626 billion, a decline of 0.3% from the $45.747 billion exported in the same period a year earlier. In recent years, eleven commodity groups each posted three-month export totals exceeding $1 billion. Of those, just six recorded nominal year-over-year gains.
On the upside
- Shipments of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) jumped 17.8% to $11.685 billion from $9.920 billion.
- Agricultural exports grew by 7.4% to $3.764 billion from $3.530 billion.
- Shipments abroad of Food & Kindred Products increased by 5.8% to $2.875 billion from $2.717 billion.
- Exports of Electrical Equipment and Appliances rose by 9.2% to $2.407 billion from $2.204 billion.
- Exports of Fabricated Metal Products enjoyed a 9.7% bump to $1.448 billion from $1.320 billion.
- Finally, shipments abroad of Waste & Scrap Materials nudged up 0.7% to $1.179 billion from $1.171 billion.
On the downside
- Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) declined by 4.0% to $4.640 billion from $4.835 billion.
- Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) slipped by 2.4% to $4.135 billion from $4.239 billion.
- Exports of Transportation Equipment plummeted by 21.4% to $3.836 billion from $4.883 billion due largely to a fall-off in shipments of electric vehicles.
- Shipments of Miscellaneous Manufactured Commodities (a broad category of merchandise ranging from medical equipment to sporting goods) dropped by 13.7% to $3.109 billion from $3.603 billion.
- The value of the state’s Petroleum and Coal exports plunged 33.1% to $1.160 billion from $1.734 billion a year earlier.
DESTINATIONS
- Mexico is by far California’s leading export market, despite a 2.4% decline in imports from California in the latest three-month period. Shipments to our nearest trading partner fell to $8.162 billion from $8.360 billion.
- Canada claimed second place by importing $5.067 billion in California goods, up 1.8% from $4.980 billion in the same period a year earlier.
- Chinatook third place with by importing $3.741 billion from California, a fall-off 14.5% from $4.376 billion a year earlier. In fourth place came
- Japan, whose imports from the Golden State dipped by 3.9% to $2.605 billion from $2.710 billion. In fifth place was Taiwan, whose imports of California products were up by 5.4% to $2.621 billion from $2.487 billion.
- South Korea, which often vies to be included in the Top Five list, wound up in sixth place, posting a 13.9% decline in its California imports to $2.289 billion from $2.657 billion last year.
Seven other overseas markets recorded a billion dollars or more in imports from California in the first quarter. They were the Netherlands ($1.864, up from $1.539 billion a year earlier); Germany($1.572 billion, up from $1.554 billion); Hong Kong ($1.378 billion, up from $ 1.157 billion; the United Kingdom($1.177 billion, up from $1.167 billion); Singapore ($1.240 billion, up from $1.081 billion); India($1.202, down from $1.278 billion); and Malaysia($1.273, up from $671 million).
The state’s overall export trade with the economies of East Asia slipped by 0.4% to $15.368 billion from $15.435 billion in the latest survey period. California’s exports to the European Union meanwhile rose by 3.7% to $9.045 billion from $8.720 billion a year earlier.
Mexico and Canada, America’s partners in the North American Free Trade Area, together accounted for 29.0% of California’s $45.626 billion merchandise export trade in the latest three months, as the nominal value of shipments to our immediate neighbors inched lower by 0.8% to $13.229 billion from $13.339 billion.
California’s exports to Latin America and the Caribbean (excluding Mexico) in the latest three months totaled $2.120 billion, off by 14.5% from $2.2.479 billion last year. The Golden State’s miniscule export trade with Sub-Saharan Africa totaled $204 million, up 12.9% from $180 million a year earlier.
MODE OF TRANSPORT
In the latest three-month period, 47.4% of the state’s $45.626 billion merchandise export trade was shipped by air, while waterborne transport carried 25.7% of the outbound trade. The balance of the state’s exports largely travelled overland to Canada and Mexico.
Trade through California ports has remained stable over the last five years, however the mode by which goods are moved has shifted. Airports and Seaports continue to be the primary way by which goods are exported from California ports, but exports have declined for Seaports (-7.9%) over the last five years. In contrast, exports by land ports have grown a substantial 42.2% over this period.
Imports through California ports are up 25% over the last five years. Seaports continue to account for the majority of imports through California ports, however imports through California seaports have only grow 19.6% over the last five years. Imports through California Airports (40.7%) and Land Ports (32.4%) have grown at a quicker pace over the last five years.
- Total export trade for California ports for Mar-24 to May-24 was up 4.2% from the same period last year. Exports were up through Seaports (1.6%), Land ports (10.6%), and Airports (4.4%) over this same period.
- Total import trade for California ports was up 8.9% from the same period last year. Imports were up through Airports (25.6%) and Seaports (5.8%), but down for Land ports (-0.1%) over the same period.
- California ports accounted for 10.7% of exports from the United States in Mar-24 to May-24, down 0.1 percentage points from the same period a year ago.
- California ports accounted for 19.6% of imports to the United States in in Mar-24 to May-24, up 0.7 percentage points from the same period a year ago.
- Container counts at the Port of Long Beach grew 8.5% from March 2023 to March 2024.
- Container counts at the Port of Los Angeles grew 4.8% from March 2023 to March 2024.
THE OUTLOOK
On the upside, global trade growth is expected to increase by more than two-fold this year, driven by low inflation and a booming U.S. economy. That, at least, is the view from three major international economic organizations – the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO). All are forecasting a significant upswing in global trade flows throughout the year, despite numerous geopolitical and logistical hurdles. To be sure, these upbeat expectations come after a relatively sluggish performance in 2023 as higher inflation and interest rates together with stagnant demand slowed growth in trade.
In light of the latest developments in the U.S. presidential election campaign, it would be foolhardy to ignore the probability that Donald Trump might recapture the Presidency. During his previous tenancy in the White House, he was a highly disruptive force in world trade, essentially turning his back on decades of official U.S. support for free trade. In recent months, the former president has made clear that he continues to regard tariffs as punitive bromides applicable to a broad range of issues related to the U.S. economy and its foreign relations. All evidence to the contrary, he has persisted in stating that tariffs are paid by foreign exporters and not American importers or their customers.
Meanwhile, rocket and drone attacks on shipping in the Red Sea continue to stretch the resourcefulness of shipping lines. There are, apparently, no real options to the massive rejiggering of global maritime supply chains that has emerged as use of the Suez Canal has effectively been denied to the majority of vessels that had formerly sailed through the canal on routes between Asia and Europe and – to a lesser extent — North America.
Rear Admiral Vasileios Gryparis, head of Aspides, the four-vessel European Union naval force countering Houthi attacks on shipping, recently told Bloomberg News that “We don’t believe hitting the Houthis might solve the problem.” He noted that some other countries have tried direct military action against the Yemeni tribe, including Saudi Arabia, but with no appreciable benefit.
Others like James Stavridis, the retired U.S. Navy admiral who formerly served as supreme allied commander of NATO, believe that the allied firepower is there. What’s lacking, he argues, is the political will to take on a group backed by Iran with sophisticated weapons also supplied by North Korea, China, and Russia.
Despite efforts from allied navies to suppress the strikes, attacks have continued. The effect has been to suspend much of the maritime trade utilizing the Suez Canal, which reports that ship movements have plunged by 80% since the Houthi attacks began last October.
By denying ocean carriers the most direct and economically efficient route between Asia and Europe (as well as between South Asia and the East Coast of the United States), the Houthis have obliged shipping lines to re-route vessels to the much longer and costly journey around the Cape of Good Hope. That, in turn, has had the effect of tying up an unusually large share of the world’s supply of not only ships but also shipping containers. Owing to these equipment shortages, shipping rates have been soaring while the availability of containers is being stretched.
As a consequence, California exporters, especially those trading in perishable agricultural commodities, can expect to encounter logistical impediments not seen since the import surges during the pandemic. Higher transport costs and container shortages will likely persist through at least the end of the year.
A further geopolitical concern involves rising tensions in the South China Sea between China and several neighbors. Naval confrontations are not good or business. This comes in addition to China’s ongoing threat of invading Taiwan. It also comes in addition to what is shaping up to be a permanent trade war between the United States and China.
Despite recent meetings between U.S. and Chinese officials, there is no palpable evidence that economic relations between the two powers will improve anytime soon. If anything, trade with China will almost certainly be an important issue in the presidential election this year, if only because it pushes so many xenophobic buttons. In all likelihood, both President Biden and Mr. Trump will vie to see which of them can seem tougher in dealing with China. More restrictions on trade and investment can safely be expected.
Elsewhere, there is a new and untested president in Mexico, and this week is most likely to see a new tenant occupy Number 10 Downing Street. (Canada, California’s second largest export market, will not hold a federal election until October of next year.) Elections in Europe, most notably in France, have seen stronger showings by rightwing parties, suggesting that whatever currently passes for the status quo may soon be redefined.
Still, almost all of the usual forecasters remain upbeat about global trade. The United Nations Conference on Trade and Development (UNCTAD) is broadly positive, expecting global GDP growth to rise 3% in the remainder of 2024. The Geneva-based agency believes that “demand for environmental goods, especially electric cars, is set to play a crucial role in driving trade growth”.
The World Bank has a somewhat more conservative outlook with global merchandise trade volume projected to grow 2.6% in 2024. In May, the Bank reported that real GDP growth at market exchange rates globally is expected to remain mostly stable over the next two years at 2.6% in 2024 and 2.7% in 2025. The Bank does caution about the impact of inflation, which it said had a downward effect on consumption of trade-intensive goods.
The Economist Intelligence Unit meanwhile warns that trade growth will not be straightforward. High interest rates coupled with subdued Western demand and persistent economic fragility in China, geopolitical strains, and climate change factors all present downside risks.
The International Monetary Fund’s baseline forecast anticipates the world economy will continue to grow at 3.2% during 2024, although it notes that growth rates will differ sharply across individual nations. While India (+6.8%) and China (4.6%) stand out at the high end of projected GDP growth, more mature economies, like those constituting the Euro Zone (+0.8%), will exhibit slower rates of economic expansion. In North America, the U.S. economy is expected to expand at a 1.7% rate, somewhat higher than Canada (+1.2%) but rather less robustly than Mexico (2.4%).
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 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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