California Trade Report

OVERVIEW

California’s share of the nation’s merchandise export trade slipped to its lowest level in decades in June (the latest numbers), according to a Beacon Economics’ analysis of U.S. trade statistics released this morning by the U.S. Census Bureau.

The state’s share of total U.S. exports was 8.8%, down from 10.2% one year earlier and down from 10.1% in pre-pandemic June 2019.

Heightened rates of Inflation in the United States and abroad continue to complicate efforts to gauge the true value of exports from the nation as well as from California. Today’s report from the Census provides state-of-origin export statistics that are not adjusted for price changes. However, U.S. export prices this June were up 18.2% percent from one year earlier, according to the U.S. Bureau of Labor Statistics.

“The gap between nominal and real export values is the widest we’ve seen in nearly two decades,” said Jock O’Connell, Beacon Economics’ International Trade Advisor. The Census Bureau reports that, while U.S. merchandise exports in June were nominally up by 23.6% from one year ago, the year-over-year gain was just 7.5% when adjusted for price changes.

Beacon Economics does not construct a separate export price index for the enormous variety of goods California businesses ship abroad. Still, there is no question that, in real terms, the state’s export trade actually contracted in June.

Nominally, California exported goods valued at $16.218 billion in June, an 8.4% jump over the $14.967 billion recorded in June 2021. Exports of manufactured goods nominally rose by 7.0% to $10.129 billion from $9.463 billion one year earlier.

Logistical snags at the state’s major seaports contributed to the nominal 2.6% fall-off in California’s exports of non-manufactured goods (chiefly agricultural products and raw materials) to $2.070 billion from last June’s $2.126 billion. Re-exports, meanwhile, jumped by 19.0% to $4.019 billion from $3.378 billion. Year-to-date, the state’s exports have totaled $93.637 billion, 8.7% ahead of the $86.152 billion recorded at this time one year earlier.

The real fall-off in exports from a year ago was partially reflected in a 3.3% year-over-year decline in the volume of containerized tonnage that sailed from California’s three major ports in June as well as an 11.9% decrease in export tonnage from Los Angeles International Airport and a 10.0% drop from San Francisco International

CALIFORNIA IMPORTS RISE AGAIN

Prices for U.S. imports advanced 10.7% percent over the past year. Accordingly, the nominal import statistics compiled by the U.S. Department of Commerce must be deflated. The Commerce Department reports that California was the state-of-destination for 16.1% of all U.S. merchandise imports in June, with a value of $45.899 billion, a nominal 15.1% hop from the $39.877 billion in imported goods in June 2021.

Manufactured imports this June totaled $40.474 billion, up 13.7% from $35.610 billion one year earlier. Non-manufactured imports this June were valued at $5.425 billion, 27.1% higher than the $4.267 billion in imported goods recorded in the previous year.

Year to date, $260.383 billion in imported merchandise entered California, up 18.0% from $220.743 billion in 2021.

Note that Beacon Economics 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., April-June) with the corresponding months one year earlier.

LEADING EXPORT COMMODITIES

California’s merchandise exports during the year’s second quarter totaled $48.274 billion, a nominal gain of 6.9% from the $45.163 billion exported in the same quarter one year earlier. Of the eleven commodity groups with exports in excess of $1 billion in the second quarter, all but two registered 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) rose by 3.8% to $10.120 billion from $9.748 billion. Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) increased by 2.5% to $5.511 billion from $5.378 billion.

Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) edged up by 2.2% to $4.486 billion from $4.388 billion. Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) jumped by 21.8% to $4.009 billion from $3.290 billion.

Agricultural exports rose by 15.5% to $3.941 billion from $3.416 billion as overseas shipments of almonds, pistachios, and walnuts – three of the state’s top five farm exports – all soared. Shipments abroad of Food & Kindred products gained by 14.2% rising to $3.301 billion from $2.890 billion.

Exports of Electrical Equipment and Appliances grew by 7.1% to $1.971 billion from $1.840 billion. Petroleum and Coal exports nearly doubled, rising 96.2% to $1.819 billion from $927 million one year earlier. Exports of Fabricated Metal Products surged by 19.5% to $1.270 billion from $1.062 billion.

On the downside, declining exports of electric vehicles continued to lower the value of overseas shipments of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, rockets, and their parts) by 12.3% to $4.217 billion from $4.807 billion. Foreign shipments of Waste & Scrap materials tumbled by 24.4% to $1.454 billion from $1.924 billion.

DESTINATIONS

California exports to Mexico during this year’s second quarter rose in nominal value by 13.3% year-over-year, ensuring that nation’s status as California’s most important export destination. Shipments to our southern neighbor grew to $7.780 billion from $6.866 billion. Second-place Canada also increased its purchases of California goods, with imports up 19.8% to $5.420 billion from $4.524 billion.

Exports to third-place China were up 8.2% to $4.480 billion from $4.140 billion. In fourth place came South Korea, whose imports from California dropped by 14.2% to $2.931 billion from $3.417 billion. That was enough to edge out fifth place Japan, whose $2.895 billion in imports from California represented a nominal 1.3% nudge over last year’s $2.858 billion.

Finishing just after Japan was Taiwan, whose $2.753 billion in imports from California represented a 33.2% leap over the second quarter of last year.

California exports to the post-Brexit United Kingdom swelled by 19.6% in the latest quarter months, growing to $1.315 billion from $1.100 billion. Still, the U.K. currently imports less from California than two of its former European Union partners, Netherlands ($1.722 billion and Germany ($1.625 billion). It is also outranked among California’s chief export markets by two of its former Asian colonies: India ($1.642 billion) and Hong Kong ($1.444 billion).

The state’s export trade with the economies of East Asia expanded by 5.1% to $17.246 billion from $16.407 billion. By comparison, California’s exports to the 27-member European Union dropped by 6.1% in the latest quarter to $6.928 billion from $7.382 billion.

Mexico and Canada, America’s partners in the North American Free Trade Area, accounted for 27.3% of California’s $48.274 billion merchandise export trade in the year’s second quarter as the nominal value of shipments to our immediate neighbors surged by 15.9% from one year earlier to $13.200 billion from $11.390 billion.

MODE OF TRANSPORT

Over the latest three months, 46.7% of the state’s $48.274 billion merchandise export trade went by air, while waterborne transport carried 28.2% of the outbound trade. The $9.805 billion value of containerized export shipments represented a 20.0% share of all California merchandise exports. The balance of exports largely travelled overland to Canada and Mexico.
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THE OUTLOOK

There is some good news. Transport costs are declining, and inflation appears to be receding. Not so encouraging is that the dollar remains strong vis a vis the currencies of nearly every major U.S. trading partner. Compared with one year ago, the Wall Street Journal Dollar Index is up 12.8%. Since that means foreign buyers must dig deeper into their pockets for the euros, pounds, yen, pesos, or loonies needed to purchase greenback-denominated goods from the U.S., the heightened value of the dollar constitutes a serious drag on U.S. exports.

Meanwhile, a new labor contract between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association is still being negotiated. The previous contract expired on July 1. The ILWU represents 22,000 dock workers at 29 Pacific Coast ports from San Diego to Bellingham, Washington, while the PMA is the agent for the terminal operators who employ longshore labor at those ports.

In the past, contract negotiations have tended to drag on for months and have often been contentious. Work slowdowns and even lockouts have disrupted trade through the ports. It is, therefore, a worrisome time for shippers eager to reach overseas markets. In last month’s California Trade Report, we noted that one of the uncertainties facing California exporters is the controversy surrounding Assembly Bill 5, a law enacted in California in 2019 but whose implementation has been delayed by legal action. The measure redefines employer-employee relations in the trucking industry.

Within a couple of weeks, opposition to AB 5 was manifested clearly when independent truckers disrupted operations at the Port of Oakland for the better part of a week. The truckers, who provide drayage service to Oakland and other California ports, were protesting AB 5, a measure that was primarily intended to provide greater protection to individuals contracting with services such as Lyft and Uber. An unintended consequence of the new law was to upend the historic relationships between trucking firms and the 70,000 independent owner/operators of big rigs who move containers to and from the state’s ports.

There are ample fears that strict implementation of the law will have a deleterious impact on the ability of the trucking industry to transport cargos efficiently and economically to and from the state’s seaports.