California’s export trade in the second month of 2024 had a nominal value of $13.798 billion, up 2.6% from the $13.447 billion recorded in the same month one year earlier, according to Beacon Economics’ analysis of the latest official trade statistics released this morning by the U.S. Census Bureau’s Foreign Trade Division.

Exports of manufactured goods rose 1.3% to $8.618 billion from $8.509 billion one year earlier. Meanwhile, the state’s exports of agricultural products and raw materials increased 8.6% to $1.855 billion from $1.708 billion. Re-exports edged up 2.9% to $3.325 billion from $3.230 billion.�

“Impressive gains in exports of computer and electronic products and agricultural produce overcame a sharp 48.1% fall-off in electric vehicle exports to yield February’s modest overall increase in California’s merchandise export trade,” said Jock O’Connell, Beacon Economics’ International Trade Advisor.

CALIFORNIA IMPORTS GAIN

The U.S. Commerce Department reports that California was the state-of-destination for 14.3% of all U.S. merchandise imports in February, with a value of $34.617 billion, an 8.1% increase over the $32.022 billion in imported goods in February 2023. Manufactured imports this February totaled $30.176 billion, up 8.6% from $27.794 billion a year earlier. Non-manufactured imports were valued at $4.442 billion, a 5.1% gain over the $4.228 billion in imported non-manufactured goods in February 2023.

Please 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 below.)

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 due to unusual developments or exceptional one-off trades may not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months for which data are available (i.e., December-February) with the corresponding period 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 adjusted to reflect changing export prices.

LEADING EXPORT COMMODITIES

California’s merchandise exports during the last three-month period totaled $42.547 billion, a decline of 2.6% from the $43.681 billion exported in the same period one year earlier. In recent years, eleven commodity groups each posted three-month export totals exceeding $1 billion. This time, however, the category of Waste and Scrap failed to make the cut, falling 10.8% to $970 million. Of the remaining ten commodity groups with exports over $1 billion in the latest three months, just four 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) jumped by 10.4% to $10.796 billion from $9.779 billion.

Agricultural exports surged by 22.9% to $3.815 billion from $3.104 billion. Exports of Electrical Equipment and Appliances grew 9.5% to $2.158 billion from $1.970 billion. Exports of Fabricated Metal Products leapt by 15.9% to $1.411 billion from $1.218 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 4.4% to $4.374 billion from $4.575 billion.

Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) tumbled by 30.8% to $3.673 billion from $5.312 billion. Please note, however, that year-over-year comparisons are sharply skewed due to a January 2023 shipment of $1.226 billion of Heterocyclic Compounds to the United Kingdom. Normally, the state’s exports of that commodity, an ingredient in a range of pharmaceutical products, average less than $1.5 million per month.

Exports of Transportation Equipment plunged by 13.3% to $3.444 billion from $3.973 billion. Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) dropped by 2.6% to $2.935 billion from $3.015 billion.�

Shipments abroad of Food & Kindred slipped by 0.1% to $2.607 billion from $2.609 billion. Petroleum and Coal exports fell 18.7% to $1.399 billion from $1.721 billion one year earlier. Exports of Waste & Scrap materials slumped by 10.8% to $970 million from $1.088 billion.

DESTINATIONS

Although sustaining a 2.7% decline in imports from California, Mexico easily retained its place atop the list of California’s leading export destination during the latest three months. Shipments to California’s nearest trading partner fell to $7.337 billion from $7.539 billion. Canada claimed second place by importing $4.484 billion in California goods, a decline of 3.4% from $4.641 billion in the same period one year earlier. China took third place with by importing $4.204 billion from California, an increase of 13.2% over $3.712 billion. In fourth place came Japan, whose imports from California fell by 9.7% to $2.440 billion from $2.701 billion. In fifth place was Taiwan, whose imports of California products were up 3.1% to $2.214 billion from $2.148 billion.

South Korea, which has normally ranked fifth, wound up in sixth place, posting a 12.9% decline in its California imports to $2.192 billion from $2.518 billion in the December-February quarter one year earlier.

Seven other overseas markets recorded a billion dollars in imports from California in the November 2023-February 2024 period. They were the Netherlands ($1.639, up from $1.604 billion in the same period one year earlier); Germany ($1.620 billion, up from $1.585 billion); Hong Kong ($1.373 billion, up from $1.182 billion; Singapore ($1.078 billion, down from $1.134 billion); Australia ($1.058 billion, up from $850 million); the United Kingdom ($10.24 billion, down from $2.365 billion); and India ($1.010 billion, down from $1.141 billion).

The state’s overall export trade with the economies of East Asia rose by 3.1% to $14.659 billion from $14.212 billion in the latest survey period. California’s exports to the European Union meanwhile fell by 12.2% to $8.377 billion from $9.536 billion one year earlier.

Mexico and Canada, America’s partners in the North American Free Trade Area, together accounted for 27.8% of California’s $42.547 billion merchandise export trade in the December-February quarter, even though the nominal value of shipments to our immediate neighbors slid 3.0% to $11.820 billion from $12.180 billion.

California’s exports to Latin America and the Caribbean (excluding Mexico) in the latest survey period totaled $2.266 billion, off by 6.1% from $2.413 billion last year. The Golden State’s minuscule export trade with Sub-Saharan Africa totaled $155 million, up 5.5% from $147 million one year earlier.

MODE OF TRANSPORT

In the latest three-month period, 47.1% of the state’s $42.547 billion merchandise export trade was shipped by air, while waterborne transport carried 27.1% of the outbound trade. The balance of the state’s exports largely travelled overland to Canada and Mexico.

THE OUTLOOK

The International Monetary Fund (IMF) is looking for the growth rate in world trade to reach 3.5% in 2024. Other forecasters are only marginally less sanguine. The World Trade Organization (WTO) anticipates trade should expand by 3.3% this year. The United Nations Conference on Trade and Development’s latest outlook is “broadly positive” with global GDP growth expected to reach 3.0%. UNCTAD, however, warns of ongoing geopolitical stresses and regional conflicts that could affect global energy and agricultural markets. Security of trading routes remains an outstanding concern, although ocean carriers have largely succeeded in working around disruptions to their customary routes through the Red Sea and in Panama.

As for the foreign markets of most direct interest to California exporters, Mexico, Canada, China, Japan, and South Korea, signs are generally positive. A February 2024 report from the Organization for Economic Cooperation and Development (OECD) observes that economic growth in Mexico “has held up well thanks to a resilient domestic demand.” The OECD further notes that Mexico has started to benefit from “near-shoring” as global manufacturing enterprises have been investing in new or expanded operations in Mexico to ensure easier access to the U.S. market. As a result, GDP growth in Mexico is expected to accelerate to 2.5% in 2024.

Expectations for Canada are rather less upbeat. The Royal Bank of Canada describes Canada’s economy as sluggish, although things should “look a little better in the second half of 2024.” As in the United States, however, consumer demand continues to move from purchases of non-essential tangible items to spending on services. On a more positive note, Canada’s relatively fast-growing population will help buoy consumer demand. According to Statistic Canada, immigration last year drove the country to its highest annual population growth rate (3.2%) since 1957.

Assessing the direction of China’s economy remains a frustrating endeavor. For one thing, its economic growth rate is announced at the start of the year, suggesting the extent to which official economic data are subject to manipulation to meet predetermined outcomes. Worse, as the Economist has lately described the China’s current predicament: “…the pillars of its decades-long miracle are wobbling. Its famously industrious workforce is shrinking, history’s wildest property boom has turned to bust and the global system of free trade that China used to get richer is disintegrating.” There seems little reason to expect any substantive shift in trade relations between Washington and Beijing, especially while China’s President Xi Jinping conspicuously cozies up to Russia’s Vladimir Putin.

Japan expects real GDP growth in 2024 to inch up just 0.6% as expansion continues to be restrained by demographic fundamentals. Japan’s population declined by 0.5% over the past year and is expected to shrink by the same margin in 2024. At the same time, Japan’s old-age dependency ratio – the proportion of those over 64 to the nation’s working-age population – is expected to reach 50.3% this year. (By contrast, America’s ratio is currently 32.2%.)

As far as California exporters are concerned, the most immediate measure to be considered is that Japan’s yen has fallen to its lowest level against the dollar since George H. W. Bush was President 34 years ago. South Korea, usually California’s fifth largest export market, sustained a 1.4% contraction in its economic growth rate last year but projects a 2.2% bump in 2024.

Like Japan and China, South Korea faces mounting demographic and structural challenges with limited opportunity for maneuver. California’s largest regional market – the European Union – is not expected to see anything resembling robust growth in 2024. Still, the European Commission’s latest outlook points to a gradual acceleration of economic activity and an easing of inflation.

In our last two reports, we warned that geopolitical concerns would be clouding the horizon for global trade as 2024 unfolded. That outlook remains valid.