California Trade Report

OVERVIEW

The value of California’s merchandise export trade in March contracted from one year earlier, according to a Beacon Economics’ analysis of the latest U.S. trade statistics released by the Foreign Trade Division of the U.S. Census Bureau.

The year’s third month of the year saw California businesses export goods with a nominal value of $16.302 billion. That was down 4.3% from the $17.033 billion the state exported one year earlier. Shipments abroad of manufactured goods slipped by 2.5% to $10.375 billion from the $10.636 billion shipped in March 2022. Exports of agricultural products and raw materials dropped by 7.4% to $2.050 billion from $2.215 billion. Re-exports declined by 7.3% to $3.877 billion from $4.183 billion.

“Storm-battered March presented unique challenges to California’s exporters, many of them logistical in nature,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. “Apart from flooded farmlands and road closures, a fall-off in U.S. demand for imports caused shipping lines to reduce service to West Coast ports, resulting in fewer ships available to carry exported goods.”

California accounted for 8.8% of the $184.459 billion in U.S. merchandise exports in March, down from its 9.5% share in March of last year. In the pre-pandemic March of 2019, California accounted for 10.5% of the nation’s merchandise exports.

CALIFORNIA IMPORTS PLUNGE

Import statistics compiled by the U.S. Department of Commerce indicate that California was the state-of-destination for 14.3% of the $262.822 billion in goods imported into the U.S. in the month of March. Those imports arriving in California were valued at $37.702 billion, a nominal 20.5% slide from the $47.418 billion imported in March 2022. Manufactured imports this March totaled $32.427 billion, down by 23.3% from $42.256 billion one year earlier. Non-manufactured imports in March were valued at $5.276 billion, up 2.2% from the $5.162 billion in non-manufactured goods imported one year earlier.

Readers are reminded that Beacon Economcs 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.

(To calculate a California state trade balance, please 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 trade 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 not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months for which data are available (i.e., January-March) with the corresponding months one year earlier. Please be aware the numbers cited below are nominal values. In other words, the dollar values cited for the past three months should be discounted to reflect higher export prices.

LEADING EXPORT COMMODITIES

California’s merchandise exports during the first quarter of 2023 totaled a nominal $44.725 billion, a 1.4% decline from the $45.363 billion exported in the same quarter one year earlier. Of the eleven commodity groups with exports exceeding $1 billion in the latest three-month period, only five registered nominal year-over-year gains.

On the upside, Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) jumped by 15.8% to $5.373 billion from $4.639 billion.

Exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, rockets, and their parts) rose by 12.1% to $4.090 billion from $3.650 billion. Exports of Electrical Equipment and Appliances gained by 9.6% to $2.108 billion from $1.923 billion.

Petroleum and Coal exports soared by 20.5% to $1.660 billion from $1.378 million one year earlier. Exports of Fabricated Metal Products increased by 6.2% to $1.273 billion from $1.199 billion.

On the downside, exports of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) dropped by 5.6% to $9.656 billion from $10.225 billion.

Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) plunged by 17.5% to $4.335 billion from $5.256 billion. Agricultural exports slumped by 8.2% to $3.205 billion from $3.490 billion.

Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) slipped by 0.9% to $3.582 billion from $3.615 billion.  Shipments abroad of Food & Kindred products fell by 9.8% to $2.629 billion from $2.916 billion.

Foreign shipments of Waste & Scrap materials dove by 14.9% to $1.167 billion from $1.371 billion.

DESTINATIONS

Mexico topped the list of California’s chief export markets during the latest quarter. Shipments south of the border rose by 6.5% to $8.084 billion from $7.593 billion in the same period one year earlier.

Exports to second-place Canada edged up by 0.5% to $4.681 billion from $4.658 billion. Exports to third-place China were down by 6.8% to $3.910 billion from $4.196 billion. In fourth place was Japan, whose imports of California goods totaled $2.652 billion, down 8.3% from $2.893 billion one year earlier. For fifth place, Taiwan edged out South Korea. Even though California exports to Taiwan fell by 7.6% to $2.449 billion from $2.650 one year earlier, shipments to South Korea fell more dramatically, by 19.8%, to $2.412 billion from $3.006 billion.

Six other overseas destinations each reported importing at least one billion dollars in California goods in the latest three-month period. They were the United Kingdom ($2.415 billion); Germany ($1.587 billion); Netherland ($1.556 billion); India ($1.265 billion); Hong Kong ($1.183 billion); and Singapore ($1.043 billion).

Exports to Russia in the first quarter plummeted by 61.3% to $26.438 million, almost exactly the $26.173 million in California exports to Ukraine.

Regionally, the state’s export trade with the economies of East Asia declined by 10.6% to $14.615 billion from $16.339 billion. By contrast, California’s exports to Europe jumped by 11.9% in the first quarter to $9.671 from $8.556 billion.

Mexico and Canada, America’s partners in the United States-Mexico-Canada Agreement (USMCA) accounted for 28.5% of California’s $44.725 billion merchandise export trade in the first quarter as the nominal value of shipments to our immediate neighbors increased by 4.2% from one year earlier to $12.766 billion from $12.251 billion.

MODE OF TRANSPORT

During the latest three-month period, 47.1% of the state’s $44.725 billion merchandise export trade was airborne. That reflected the preeminence of advanced technology industries producing goods with high value-to-weight ratios. Meanwhile, oceangoing vessels transported 26.1% of the state’s outbound trade. The balance of the California’s exports largely travelled overland to Canada and Mexico.

THE OUTLOOK

Forecasting export trends normally involves the consideration of economic factors such as the level of foreign demand, changes in currency exchange rates, transportation costs, etc. However, in California right now, we’re obliged to also watch the weather or, more precisely, the thermometer.

Although the waves of atmospheric rivers that deluged the state this past winter are hopefully behind us, concerns now turn to what happens to the record high snowpack that has accumulated in California’s mountains. Based on readings taken by the California Department of Water Resources from 130 snow sensors throughout the state on April 3, the statewide snowpack was 237% of average for that date.

One worry is that a fast runoff could dramatically affect surface transportation. The state’s primary north-south highway and railroad systems run along the floor of the Central Valley. But the larger concern at the moment involves production agriculture and, ultimately, exports from the nation’s largest farm exporting state. (You didn’t think it was Kansas or Iowa, did you? Adding farm exports from those two states won’t even get you close to California’s total, according to the U.S. Department of Agriculture.)

Unfortunately, growers and ranchers in the formerly drought-stricken Central Valley and Coastal regions are especially nervous about the prospect of flooding. Valuable farmland between Watsonville and Monterey has already been inundated by levee breaches. The reappearance of Tulare Lake, to cite another example, imperils the region’s dairy industry.

That’s not inconsequential. According to a report from the Public Policy Institute of California, as many as 100,000 dairy cattle were recently at risk, necessitating a Dunkirk-like mobilization of private and public transportation assets to move as many cattle as possible to higher ground. In the last accounting from the Agricultural Issues Center at UC Davis, dairy products represented the state’s third most valuable agricultural export after almonds and pistachios.

Fortunately, spring throughout much of the state has so far been uncharacteristically cool. Rivers and streams are still running high but not – again, so far – causing the catastrophic flooding many had feared. Still, the unusual accumulation of rainwater on farmland statewide inhibits normal agricultural practices. Soggy fields are not ideal for either planting or harvesting. Furthermore, conservation policies encouraging the recharging of depleted groundwater reserves will essentially fallow a great deal of acreage that might otherwise have produced crops for export.

So it is likely that production and exporting will be curtailed for longer than the current crop year.

Another matter of major concern to California exporters is the unresolved longshore labor contract negotiations. Lately, the International Longshore and Warehouse Union (ILWU) has been engaging in relatively minor actions to signal their frustrations that babies are now being born who were conceived after the last formal West Coast longshore labor contract expired on July 1 of last year.

As has happened in the past, failure to reach an amicable accord could lead to serious disruptions in the operations of West Coast seaports. Within the past week or so, there have been indications of progress, although celebrations are apt to be premature. Arriving at a final agreement will still take weeks, if not months, because the process of getting ILWU local unions to sign on is cumbersome. So, journalists run the risk of reporting yet another false dawn; diversions of ships to East and Gulf Coast ports will likely continue to deprive California exporters of space on outbound vessels leaving the state’s seaports.