California Trade Report

OVERVIEW

California’s export trade experienced a second consecutive double-digit increase in the value of overseas shipments in March, 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 $17.033 billion in the latest numbers, a nominal 14.9% bump over the $14.824 billion recorded in March 2021 as well as a 25.6% gain over the $13.566 billion exported by the state’s businesses in March 2020. This March also represented a 9.5% increase over the value of California exports in the pre-pandemic month of March 2019.

In the latest numbers, California’s exports of manufactured goods surged by 17.8% to $10.636 billion from $9.026 billion one year earlier. However, owing to logistical snags, the state’s $2.215 billion in exports of non-manufactured goods (chiefly agricultural products and raw materials) fell 1.4% short of last March’s $2.247 billion. Re-exports, meanwhile, jumped by 17.8% to $4.183 billion from $3.551 billion. California accounted for 9.5% of the nation’s overall merchandise export trade in March.

“We need to be careful of the numbers; while they reflect recovery in global trade, they also reflect the global inflation we’re seeing,” said Christopher Thornberg, Founding Partner of Beacon Economics. “According to national data, the price of exported goods has risen 15% in the last year, that means good profits for exporters, but real flows and the jobs they support are not growing as fast as these numbers would suggest.”

Over the first three months of the year, the state’s exports have totaled $45.363 billion, 3.4% ahead of the $43.860 billion recorded the year before and 10.7% over the $40.995 billion in merchandise exports the state shipped in the first quarter of 2020. Year-to-date exports this year are also up 10.6% over the first quarter of 2019, the last relatively normal year before the COVID pandemic.

“As much as the daily news reminds us of the challenges we face, California’s March export numbers are cause for modest celebration, at least until we resume working our worry beads,” said Jock O’Connell, Beacon Economics’ International Trade Advisor.“There are a lot of dark clouds out there, not least of which are the upcoming longshore labor contract negotiations on the West Coast.”

Although the dollar value of the state’s export trade might have risen by 14.9% in March, the number of loaded export containers shipped from the Ports of Los Angeles, Long Beach, and Oakland in March was down by 17.1%. 60,934 fewer loaded twenty-foot-equivalent (TEU) loaded containers sailed from the state’s major ports in March than had one year earlier. Airborne export tonnage from Los Angeles International in March was also down 7.5% from one year earlier. A jump in overland exports to Mexico and Canada offset these tallies.

CALIFORNIA IMPORTS CONTINUE THIER CLIMB

The U.S. Department of Commerce reports that California was the state-of-destination for 16.0% of all U.S. merchandise imports in March, with a value of $47.418 billion, a 24.2% jump from the $38.177 billion in imported goods in March 2021. Manufactured imports totaled $42.256 billion, up 23.0% from $34.348 billion one year earlier. Non-manufactured imports in March were valued at $5.162 billion, 34.8% higher than the $3.829 billion in imported goods recorded in the third month of 2021.

For the year to date, $127.690 billion in imported merchandise entered California, up 22.4% from $104.323 billion in 2021.

Beacon Economics has long had a dubious attitude toward the federal government’s state-of-destination numbers. Their basic shortcoming is that they encompass not just goods that are ultimately consumed or otherwise used by California residents and businesses but also a large quantity of merchandise that is merely passing through the state on route to 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.

LEADING EXPORT COMMODITIES

California’s merchandise exports during the year’s first quarter totaled $45.363 billion, a nominal gain of 10.6% from the $40.998 billion exported in the same quarter one year earlier. Of the eleven commodity groups with exports in excess of $1 billion in the first quarter, nine saw gains while just two suffered declines.

On the plus side, the list was topped by shipments of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments), which rose by 8.6% to $10.225 billion from $9.413 billion.

Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) increased by 11.9% to $5.256 billion from $4.695 billion. Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) surged by 13.5% to $4.639 billion from $4.088 billion.

Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) gained 11.1% to $3.615 billion from $3.254 billion.

Agricultural exports also edged up by 4.3% to $3.490 billion from $3.344 billion. Shipments abroad of Food & Kindred products swelled by 16.4% to $2.916 billion from $2.504 billion.

Exports of Electrical Equipment and Appliances expanded by 16.2% to $1.923 billion from $1.650 billion. Petroleum and Coal exports more than doubled, rising 127.4% to $1.378 billion from $606 million one year earlier. Exports of Fabricated Metal Products soared by 24.0% to $1.199 billion from $967 million.

On the downside, owing to a sharp decline in exports of electric vehicles, overseas shipments of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, rockets, and their parts) tumbled by 15.8% to $3.650 billion from $4.333 billion. Foreign shipments of Waste & Scrap materials slipped by 3.7% to $1.371 billion from $1.424 billion.

DESTINATIONS

First quarter exports from California to Mexico jumped by 21.7% year-over-year, ensuring that nation’s status as California’s most important export destination. Shipments to our southern neighbor grew to $7.593 billion from $6.240 billion. Second-place Canada also increased its purchases of California goods, with imports up 16.1% to $4.658 billion from $4.012 billion. Exports to third-place China rose nearly as much, up 15.8% to $4.196 billion from $3.624 billion. In fourth place came South Korea, whose imports from California rose by 2.4% to $3.006 billion from $2.936 billion. That edged out fifth place Japan, which saw its import trade from California shrink by 2.4% to $2.893 billion from $2.963 billion. Making a strong run at one if the top five positions was Taiwan, whose imports from California in the first quarter totaled $2.650 billion, up by 36.0%% from $1.949 billion one year earlier.

California exports to the post-Brexit United Kingdom inched up in the first quarter by 3.1% to $1.072 billion from $1.040 billion. The U.K. currently imports less from California than two of its former European Union partners, the Netherlands ($1.713 billion) and Germany ($1.547 billion). It is also outranked among California’s chief export markets by three of its former Asian colonies: India ($1.831 billion), Hong Kong ($1.279 billion), and Singapore ($1.259 billion).

The state’s export trade with the economies of East Asia expanded by 9.4% to $16.339 billion from $14.491 billion.  By comparison, California’s exports to the 27-member European Union dropped by 5.2% in the first quarter to $6.783 billion from $7.153 billion. Mexico and Canada, America’s partners in the North American Free Trade Agreement, accounted for 27.0% of California’s merchandise export trade in the first quarter as the value of shipments to our North American trading partners surged by 19.5% from one year ago to $12.251 billion from $10.252 billion.

MODE OF TRANSPORT

During the year’s first quarter, 48.6% of the state’s $45.363 billion merchandise export trade went by air, while waterborne transport carried 26.9% of the outbound trade. The balance of exports largely travelled overland to Canada and Mexico.

THE OUTLOOK

Beacon Economics’ near-term outlook for California exporters remains generally favorable largely because of the resourcefulness and resiliency that the state’s trading community has long demonstrated. Still, there are several reasons for caution. Most immediately, the already congested conditions at the state’s major seaports may be exacerbated by what may prove to be a troubled negotiation of a new longshore labor contract at West Coast ports. In addition, exporters generally suffer when the dollar is high, and that is currently the case. The Wall Street Journal Dollar Index, which measures the purchasing power of the greenback against a basket of other major currencies, has been rising steadily and is now nearly 5% over its position one year ago.

Other points of concern (flashpoints, really) are Russia’s invasion of Ukraine and the draconian lockdowns of several of China’s major population and industrial centers. While the armed conflict in Ukraine has been roiling world energy, food, and fertilizer markets, the growing prospect of regime change in Moscow creates grave uncertainties about the future of Russia and its relations with the West. China’s policy of imposing harsh lockdowns in many of its largest population and industrial centers has severely disrupted its trade with the rest of the world. While much attention has been devoted to factory closures, the transport systems that deliver imported merchandise to Chinese markets have been heavily restricted.

Russia is also an important producer of chemical fertilizers. Indeed, last year, Russia was the second largest source of chemical fertilizer imports into California, accounting for 23.0% of the total. At a time when shrinking water supplies are threatening growers, ranchers, dairies, and food processors across California (and much of the West), the state’s farmers are complaining about higher prices and the limited availability of nitrogen fertilizers used to nurture tree nuts and other specialty crops. Elevated energy costs will likely lead to higher transport costs.

One point that seldom merits much media attention is the impact of the pandemic (not to mention armed conflicts) on the ability to conduct business and to develop business relations the old-fashioned way, through person-to-person connections. Even in an age of Zoom conferences, Facetime contacts, and email communications, face-to-face meetings remain an essential form of doing business across borders and cultures.

Yet business travel to most every nation involves clearing pandemic-induced hurdles. For all practical purposes, business travel to China is now largely impossible, while Japan reports it will treat businesspeople applying for short-term visas as “special exceptional circumstances.” Americans wishing to enter Canada and most European countries are required to submit proof of vaccination, even though Americans traveling to the European Union are no longer required to show proof of a negative rapid antigen test. In contrast, the United States continues to require anyone travelling here, regardless of nationality, to have proof of a negative rapid antigen test. Travel to Mexico faces fewer restrictions, although the State Department warns that travelers to much of that country face heightened personal security risks.

As we have previously noted, the U.S. Congress, the Biden administration, and the State of California have been seeking to facilitate exports of agricultural commodities to overseas markets. Much is being made of a new pop-up staging area at the Port of Oakland to assist agricultural exporters. However, as the California Farm Bureau Federation is pointing out, that facility has little relevance if shipping lines continue to skip making calls at Oakland. Finding ways of persuading foreign-owned ocean carriers to call at Oakland on a more regular basis is likely to be problematic.