California Trade Report

OVERVIEW

California’s share of the nation’s merchandise export trade increased in the latest numbers, bumping up to 8.8% in September from 8.6% in August, according to Beacon Economics’ analysis of U.S. trade statistics released this morning by the U.S. Census Bureau.

“That’s the good news,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. “The less favorable news is that California’s share of the nation’s merchandise export trade was 9.9% a year ago.”

In the past, Beacon Economics has used year-over-year comparisons to illustrate the rise or fall of California’s merchandise export trade. That made sense in a low-inflation environment. Unfortunately, the monthly state-of-origin trade statistics we normally cite are compiled and published by the U.S. Census Bureau, which does not adjust the data for price changes (i.e., inflation). This means that weighing the latest month’s export figures against those a year earlier can be highly misleading, particularly when the U.S. Bureau of Labor Statistics reports that export prices have risen 9.5% over the past twelve months. To give readers a sense of the degree to which the nominal California export statistics cited below may differ from price-adjusted numbers, the Census is reporting that total U.S. exports in September were up 24.0% on a nominal basis but only by 16.3% in real terms.

For the record, however, here are the nominal state export figures for September. California businesses exported goods valued at $15.432 billion in the year’s ninth month, a 10.4% gain over the $13.978 billion recorded in September 2021. More specifically, exports of manufactured goods rose by 10.9% to $9.530 billion from $8.590 billion one year earlier, while the state’s exports of agricultural products and raw materials edged up by 1.5% to $1.888 billion from $1.861 billion. Re-exports, meanwhile, surged 13.8% higher to $4.015 billion from $3.527 billion. Year-to-date, the state’s merchandise exports have totaled $139.942 billion, 7.7% ahead of the $129.949 billion recorded at this point one year earlier.

The real trend in exports from one year earlier was partially reflected in a 1.3% year-over-year decline in the number of loaded shipping containers that sailed from California’s three major ports in September as well as a parallel 7.5% drop in export tonnage from Los Angeles International Airport.

CALIFORNIA IMPORTS SLIP

In evaluating the nominal import statistics provided below, readers should be aware that prices for U.S. imports advanced 6.0% percent over the past year according to the U.S. Bureau of Labor Statistics. According to the unadjusted import statistics compiled by the U.S. Commerce Department, California was the state-of-destination for 15.3% of all U.S. merchandise imports in September, with a value of $42.077 billion, a nominal 1.0 % dip from the $42.485 billion in imported goods in September 2021. Manufactured imports this September totaled $37.170 billion, down 2.6% from $38.172 billion one year earlier. Non-manufactured imports in September were valued at $4.907 billion, 13.8% higher than the $4.313 billion in imported goods recorded in September 2021.

For the year to date, $389.324 billion in imported merchandise has entered California, up 13.1% from $344.304 billion in 2021.

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 sizable 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., July-September) 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 year’s third quarter totaled $46.305 billion, a gain of 6.0% from the $43.698 billion exported in the same period one year earlier. Of the eleven commodity groups with exports in excess of $1 billion in the latest quarter, all but three 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 3.6% to $10.415 billion from $10.053 billion. Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) jumped by 13.1% to $5.818 billion from $5.143 billion.

Exports of Transportation Equipment, which had been sliding over the past few months, recovered by surging 26.8% to $4.494 billion from $3.545 billion.

Agricultural exports edged up by 0.4% to $3.161 billion from $3.148 billion. Shipments abroad of Food & Kindred products gained by 10.1% to $3.097 billion from $2.814 billion.

Exports of Electrical Equipment and Appliances inched up by 0.5% to $1.920 billion from $1.910 billion. Petroleum and Coal exports soared by 39.8% to $1.280 billion from $916 million one year earlier. Exports of Fabricated Metal Products leapt by 16.9% to $1.253 billion from $1.072 billion.

On the downside, chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) edged lower by 4.1% to $4.317 billion from $4.500 billion.

Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) slumped 4.0% to $3.389 billion from $3.529 billion. Shipments to foreign markets of Waste & Scrap materials plunged by 23.5% to $1.212 billion from $1.586 billion.

DESTINATIONS

Mexico retained its rank as California’s top export destination during this year’s third quarter. Shipments to our southern neighbor rose by 10.4% to $7.740 billion from $7.010 billion. Next was Canada, which also increased its purchases of California goods, with imports rising 11.2% to $4.968 billion from $4.467 billion. Exports to third-place China were up 13.6% to $4.926 billion from $4.336 billion. In fourth place came Japan, whose imports from the Golden State rose by 9.7% to $3.073 billion from $2.644 billion. In fifth place was South Korea, whose imports of California products were up 7.5% to $2.841 billion from $2.644 billion.

On the verge of breaking into California’s Top Five export markets was Taiwan, with $2.619 billion in imports, a 7.7% bump over $2.432 billion one year earlier.

Of more than passing interest, California’s $34.801 million in exports to Russia in the latest quarter were down by 74.3% from one year ago. Exports to Ukraine meanwhile totaled $23.580 million, a 46.5% decline from last year.

The state’s export trade with the economies of East Asia expanded by 8.0% to $17.211 billion from $15.936 billion. California’s exports to the European Union were up 5.6% in the last three months to $6.570 billion from $6.223 billion one year earlier.

Mexico and Canada, America’s partners in the North American Free Trade Area, accounted for 27.4% of California’s $46.305 billion merchandise export trade in the third quarter as the nominal value of shipments to our immediate neighbors surged by 10.7% from one year earlier to $12.707 billion from $11.477 billion.

MODE OF TRANSPORT

In the third quarter, 49.6% of the state’s $46.305 billion merchandise export trade went by air, while waterborne transport carried 25.3% of the outbound trade. The balance of the state’s exports largely travelled overland to Canada and Mexico.
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THE OUTLOOK

There is no question economic growth worldwide is slowing and, with it, the volumes of goods being traded among nations. Whether a global recession is on the horizon is another question. Some countries will obviously fare better than others, and the market conditions for different types of products or commodities will vary. Rising food and energy costs will hamper every economy’s growth prospects.

Adding to the challenges specifically faced by California’s exporters are the continued high value of the dollar, higher interest rates here and abroad, and new restrictions on the export of technologically sophisticated products to China. According to the Wall Street Journal Dollar Index, the greenback today is up 19.3% over where it was one year ago. The Federal Reserve Bank’s latest efforts to corral inflation by hiking interest rates will clearly add to the cost of doing business and suppress demand for goods as well as services. Additionally, the implementation of trade embargoes designed to impede China’s technological advance — especially in areas that might bolster its military capabilities – will reduce export opportunities for many California businesses.

There is some positive news, however. Ports along the West Coast are no longer congested, and ocean transport costs have been declining. Inflation rates, at least within the United States, have been moderating. Of further concern is the economic condition of several of California’s leading export markets. Efforts to dampen inflation threaten to slow economic growth in both Mexico and Canada. Meanwhile, across the Atlantic, the European Union is dealing with sharp spikes in energy and food prices.

Across the Pacific, China’s rigid anti-COVID policies have interfered with the normal functioning of the economy, while the recently concluded Chinese Communist Party Congress gave evidence that China will follow a more unyielding ideological path in future economic decisions. On top of that, riding tensions with the United States over a range of issues are hardly conducive to an expansion of California’s export trade with China, especially for those businesses engaged in the production of technologically sensitive products.

More immediately worrisome for exporters reliant on ocean shipping is that a new longshore labor contract governing 29 West Coast ports from San Diego to Seattle is far from being settled. The last contract expired over four months ago. Talks between the Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU) are currently being held up as ILWU negotiators focus on resolving a dispute with another union, the International Association of Machinists and Aerospace Workers, over which union’s members may perform certain functions at the Port of Seattle. As a result, a new coast-wide longshore labor contract is not expected until early next year.