California Trade Report

OVERVIEW

Despite supply chain disruptions, rising transportation costs, shortages of truck drivers, a strong dollar, and the ongoing pandemic, California exporters shipped $14.884 billion in goods to foreign markets in November, according to Beacon Economics’ analysis of the latest U.S. trade statistics released this morning by the U.S. Census Bureau’s Foreign Trade Division.

Those shipments represented a nominal gain of 4.5% from one year earlier. Exports of manufactured products were up 5.0% to $9.020 billion, while exports of non-manufactured goods (chiefly the state’s agricultural products and raw materials) were worth $2.344 billion, an 8.9% year-over-year increase. Re-exports of previously imported goods edged up by 0.6% to $3.519 billion. Year-to-date, California’s merchandise export trade amounted to $160.744 billion, a 13.1% gain over the first eleven months of 2020.

Although any year-over-year gain is good news, comparisons with November 2020 are misleading. Very simply, November 2020 was the worst November for California exporters since 2015. So, even though California’s $14.884 billion merchandise export trade this past November was certainly an improvement over the preceding November’s $14.238 billion, it was only 0.9% higher than the $14.757 billion the state exported in pre-pandemic November 2019.

There is another consideration as well—inflation. “These monthly numbers are nominal; to get an idea of real shipments we need to account for changes in prices,” said Christopher Thornberg, Founding Partner of Beacon Economics. “Export prices for goods are up sharply from where they were last year, reflecting the surging inflation we’ve seen across the nation. California exports probably aren’t that much higher than last year, but the good news is that exporters are getting higher prices for their goods.”

There are other positive signs as well. “Things are more encouraging than the numbers might suggest,” said Jock O’Connell, Beacon Economics’ International Trade Advisor. “While the overall increase in exports from November 2019 may appear lackluster, exports to our top ten trading partners were up by 5.9%.”

Moreover, O’Connell notes that despite the diversity of California’s economy, a single large firm can move the numbers. In this case, a sharp fall-off in overseas Tesla shipments from the company’s plant in the San Francisco Bay Area resulted in a $1.032 billion drop in the state’s electric vehicle export trade between November 2019 and November 2021.

“That hurts,” said O’Connell.

CALIFORNIA IMPORT SURGE CONTINUES

The state’s import trade continued to reflect the ongoing wave of imported goods that has congested the nation’s supply chains and left fleets of container ships moored off U.S. seaports. The U.S. Census Bureau reports that California was the state-of-destination for 16.2% of all merchandise imports that entered the nation in November, down from a 16.8% share one month earlier. November imports to California totaled $42.004 billion, up 13.4% from $37.046 billion in November 2020.

(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., September-November) with the corresponding months one year earlier.

However, given the disruptions in trade caused by the initial outbreak of the COVID-19 virus last year, we continue to confine our comparisons of the latest three months of export data with the data for the same months in pre-pandemic 2019.

LEADING EXPORT COMMODITIES

California’s $44.774 billion merchandise export trade during this year’s September-November period was nominally up 2.1% over the $43.860 billion in exports reported in those same three months in 2019.

Apart from Transportation Equipment, all of the major commodity groups posted appreciable increases over last year. But not all saw a gain over the same months in 2019, when 10 achieved that status. Of the 10 commodity groups that posted exports of at least $1 billion during the latest September-November period, six posted increases over 2019, while four sustained declines.

On the plus side, exports of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) this August through November showed a modest 0.8% increase to $10.068 billion from $9.990 billion.

Shipments abroad of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) surged by 30.8% to $5.081 billion from $3.884 billion. Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) leapt by 29.7% to $4.588 billion from $3.538 billion.

Shipments abroad of Agricultural Products rose by 1.4% to $4.251 billion from $4.193 billion. Exports of Food and Kindred Products jumped by 16.1% to $2.861 billion from $2.464 billion. Shipments abroad of Waste & Scrap soared by 49.4% to $1.528 billion from $1.023 billion.

On the downside, the state’s exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their respective parts) plummeted by 43.2% to $3.378 billion from $5.953 billion as shipments of aerospace gear sagged and as Tesla slowed its overseas shipments from its Fremont assembly plant.

Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods that have been highly exposed to retaliatory tariffs) edged down by 2.5% to $3.453 billion from $3.542 billion. Exports of Fabricated Metal Products declined by 3.4% to $1.167 billion from $1.203 billion. Exports of Electrical Equipment and Appliances slipped by 2.0% to $1.913 billion from $1.952 billion.

DESTINATIONS

Mexico remained atop the list of California’s leading export markets. Shipments south of the border rose by 4.4% from the pre-pandemic September-November months of 2019 to $7.159 billion from $6.854 billion. Canada retained second place with imports from south of its border totaling $4.893 billion, up 11.6% from $4.385 billion two years earlier. China came third, with $4.614 billion in imports from California, up 12.1% from $4.114 billion. Japan was fourth with imports of $3.128 billion up by 6.4% from the $2.940 billion it had imported two years earlier. In fifth place was the Republic of Korea, which imported $2.552 billion in goods from California, a gain of 13.5% from $2.247 billion in the September-November period of 2019.

The latest three-month period saw large increases in California exports to Taiwan (+22.2% to $2.443 billion from $1.963 billion); Germany (+7.7% to $1.747 billion from $1.622 billion); and India (+39.5% to $1.840 billion from $1.319 billion). As might be expected, exports to Hong Kong tumbled 23.0% to $1.729 billion from $2.244 billion.

California’s export trade with post-Brexit Britain fell by 12.5% to $1.207 billion from $1.379 billion. Among its former European Union partners, the United Kingdom now trails both Germany ($1.747 billion) and the Netherlands ($1.450 billion) as importers of California products. As markets for the state’s exports, Britain has also been eclipsed by three of its former Asian colonies, India ($1.840 billion), Hong Kong ($1.729 billion), and Singapore ($1.290 billion).

Regionally, California exports to the economies of East Asia increased by 6.8% to $16.552 billion from $15.497 billion two years earlier. Meanwhile, the state’s exports to the now 27-nation European Union in the latest three months tumbled by 16.9% to $6.372 billion from $7.668 billion. Shipments to our North American trading partners, however, rose by 7.2% to $12.052 billion from $11.239 billion. Together, Mexico and Canada accounted for 26.9% of all of California’s merchandise exports in the latest September-November period.

MODE OF TRANSPORT

Air freight accounted for just under half (49.8%) the value of California’s $44.774 billion merchandise export trade in the latest September-November period. Meanwhile, seaborne transport carried 25.7% of the outbound trade. Containerized shipments by sea, which have been attracting a great deal of media attention lately, held 20.6% of the value of California’s export trade. The balance of the state’s exports moved overland, with Canada and Mexico being the principal destinations.

THE OUTLOOK

The dramatic emergence of the Omicron Variant in the period before the holidays has rattled policymakers worldwide. Governments are revisiting various degrees of lockdowns, while private companies are tightening measures designed to minimize disruptions to normal business operations. In many places, worker shortages related to the pandemic have led to reductions in business hours.

China has once again resorted to draconian actions to contain the spread of the virus. In maybe the most notable case, the entire city of Xi’an with its population of 13 million has been locked down and residents instructed to stay at home for the past two weeks in response to an outbreak in which about 1,800 people were diagnosed with Covid-19. And air cargo flights from the U.S. to Hong Kong have been halted in what looks to be something more than a tiff over quarantine requirements.

On the other side of the globe, European nations are responding to widening outbreaks with an often-confusing array of measures. Closer to home, port officials fear that the latest outbreaks will mean fewer dock workers will be available to handle trade, especially through California’s three major ports of Los Angeles, Long Beach, and Oakland.

Logistical issues continue to stymie the state’s exporters. A controversial new study from the University of California calculates that port congestion and related logistical inefficiencies cost the state’s agricultural exporters an estimated $2.1 billion in losses in just the five months between May and September 2021. The loss to tree nut exporters was pegged at $520 million, even though almond and walnut exports were up in tonnage terms. Data from the U.S. Census Bureau’s Foreign Trade Division also indicate that the value of containerized agricultural exporters from California rose during the same months the UC report claimed the state’s agricultural exporters suffered major losses.

Complicating the picture for all of the state’s exporters are new programs aimed at reducing the number of empty containers that are clogging supply chains in Southern California. The Port of Los Angeles, the nation’s busiest container port, has announced it will impose fines for empty containers whose “dwell times” extend beyond one week. The port already ships nearly four times as many empty containers as loaded ones.

Apart from the pandemic and logistical bottlenecks, spiraling transport costs and a stronger dollar have all been challenging California’s exporters. Those factors are likely to remain in play over the next several months. On the other hand, as previously noted, California’s exports to its principal trading partners have remained strong.