Although the nominal value of California’s merchandise export trade in July fell from one year earlier, the decline was not as great as that sustained by the nation as a whole, according to Beacon Economics’ analysis of U.S. trade statistics released this morning by the Foreign Trade Division of the U.S. Census Bureau.

The year’s seventh month saw California businesses export goods with a nominal value of $14.035 billion. That was down 8.2% from the $15.286 billion the state exported in the same month one year earlier. By comparison, overall U.S. exports were off by 9.1% from one year earlier.

Shipments abroad of manufactured goods from California slipped 8.8% to $9.021 billion from $9.895 billion in the previous July. Exports of agricultural products and raw materials dropped by 4.6% to $1.650 billion from $1.729 billion. Re-exports declined by 8.1% to $3.364 billion from $3.662 billion. 

“We are seeing the impact of lower prices on a wide array of California’s exports,” said Jock O’Connell, Beacon Economics International Trade Advisor. “Almonds, for example, are the state’s most valuable agricultural export, and almond export tonnage is up about 10% over last year. But the prices growers are getting for their crops are about the lowest in a decade. Similarly, Tesla ships electric vehicles from a factory in Northern California, but stiff competition for global markets from Chinese electric vehicle manufacturers like BYD has been driving car prices down.”

“Prices of both imports and exports have been down over the last year,” said Christopher Thornberg, Founding Partner of Beacon Economics. “What we’re seeing is not a traditional negative in terms of trade shock, but rather the impact of global shipping markets finally catching up with the post-Covid demand surge.”

The real question for shippers thinking ahead, according to Thornberg, has to do with the impact of drought problems in Panama on global shipping patterns, not to mention the halting of grain shipments from Ukraine. “Global prices for shipped goods may well start to climb again,” said Thornberg.

California accounted for 8.8% of the $159.623 billion in U.S. merchandise exports in July, up slightly from its 8.7% share in July of last year. In pre-pandemic July 2019, California accounted for 10.2% of the nation’s merchandise exports.

CALIFORNIA IMPORTS TUMBLE

As expected, import statistics compiled by the U.S. Department of Commerce indicate that California was the state-of-destination for 14.3% of the $255.662 billion in goods that entered the U.S. in July. Imports arriving in California were valued at $36.561 billion, a nominal 16.2% decline from the $43.652 billion imported in July 2022. The state’s manufactured import trade this July totaled $32.588 billion, lower by 15.9% from $38.759 billion one year earlier. Non-manufactured imports in July were valued at $3.973 billion, off by 18.8% from the $4.892 billion the state reportedly imported one year earlier.

Readers are reminded that Beacon Economics has long been wary of the federal government’s state-of-destination statistics. The data’s chief shortcoming is that they are likely to 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 end-users elsewhere in the country. We do note, however, that the latest numbers appear to be much more consistent with California’s population size and share of the nation’s economic output.

(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 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., May-July) 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 latest survey period totaled a nominal $44.565 billion, a 7.2% decline from the $48.036 billion exported in the same period one year earlier. Of the eleven commodity groups with exports exceeding $1 billion in the latest three-month period, only three registered nominal year-over-year gains.

On the upside, exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, rockets, and their parts) jumped by 13.1% to $5.030 billion from $4.448 billion. Exports of Electrical Equipment and Appliances gained by 5.6% to $2.069 billion from $1.958 billion. Exports of Fabricated Metal Products edged up by 4.5% to $1.344 billion from $1.286 billion.

On the downside, exports of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) declined by 5.0% to $9.819 billion from $10.331 billion. Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) plunged by 19.4% to $4.529 billion from $5.622 billion.

Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) fell by 10.1% to $3.944 billion from $4.388 billion. Shipments of Miscellaneous Manufactured Commodities (a broad category of merchandise ranging from medical equipment to sporting goods) inched lower by 2.5% to $3.788 billion from $3.886 billion. 

Agricultural exports slumped by 14.9% to $3.198 billion from $3.758 billion. Shipments abroad of Food & Kindred products dropped by 17.4% to $2.644 billion from $3.202 billion.

Petroleum and Coal exports declined by 17.9% to $1.442 from $1.756 million one year earlier. Foreign shipments of Waste & Scrap materials plummeted by 18.1% to $1.091 billion from $1.332 billion.

DESTINATIONS

Mexico was again the leading destinations for California’s exports during the latest three-months. Exports to Mexico were up by 7.8% to $8.398 billion from $7.789 billion in the same period one year earlier. Exports to second-place Canada fell by 9.7% to $4.984 billion from $5.516 billion. California exports to third-place China were down by 14.4%, slipping to $4.193 billion from $4.901 billion. In fourth place was Japan, whose imports of California goods totaled $2.678 billion, off by 10.5% from $2.994 billion one year earlier. Fifth place went to South Korea, despite a 23.3% fall-off in purchases from California to $2.399 billion from $3.130 billion. Taiwan, which usually vies with South Korea to fill out the Top Five list, saw its imports from California dive by 18.0% to $2.148 billion from $2.621 billion.

Six other overseas destinations each reported importing at least one billion dollars in California goods in the latest survey period. They were the Netherland ($1.548 billion); Germany ($1.496 billion); Hong Kong ($1.425 billion); India ($1.220 billion); the United Kingdom ($1.171 billion); and Singapore ($1.142 billion). Regionally, the state’s export trade with the economies of East Asia tumbled by 14.4% to $14.960 billion from $17.501 billion. By comparison, California’s exports to Europe slipped by 4.6% in the last three months to $8.297 from $8.702 billion. Shipments of California products to Latin America and the Caribbean (excluding Mexico) amounted to $2.265 billion, up 1.1% from $2.240 billion a year earlier. Exports to Sub-Saharan Africa meanwhile surged by 16.1% to $210 million from $180 million.

Mexico and Canada, America’s partners in the United States-Mexico-Canada Agreement (USMCA) accounted for fully 30.0% of California’s $44.565 billion merchandise export trade in the latest survey period as the nominal value of shipments to our immediate neighbors inched lower by 0.6% from one year earlier to $13.382 billion from $13.306 billion.

MODE OF TRANSPORT

During the latest survey period, 46.7% of the state’s $44.565 billion merchandise export trade was airborne. That large share reflects the preeminence of advanced technology industries producing goods with high value-to-weight ratios. Meanwhile, oceangoing vessels transported 25.8% of the state’s outbound trade. The balance of the California’s exports largely travelled overland to Canada and Mexico.

THE OUTLOOK

The good news is that the International Longshore and Warehouse Union has voted to ratify a new six-year contract with the Pacific Maritime Association, the organization representing the terminal operators at 29 U.S. West Coast ports. The union had been working without a contract since July of last year.

Hammering out a new accord has been a contentious affair, with periodic disruptions in normal port operations. The threat of graver troubles on the waterfront such as a work slowdown in the winter of 2014-15 led many shippers to divert cargo traffic to East and Gulf Coast ports. Such diversions affected California exporters by reducing the flow of containerized imports arriving at the state’s ports. That, in turn, sliced into the ports’ outbound shipping capacity. Now that an agreement has been reached, those ports should begin to see higher traffic levels. On the other hand, the pay and benefit enhancements that ILWU members will net under the new contract will eventually be passed on to importers and exporters shipping their cargos through America’s West Coast ports.

Further good news came in the form of the latest set of positive economic indicators attesting to the resilience of the U.S. economy. Contrary to what many of the nation’s leading pundits had been confidently expecting, a U.S. recession has not materialized. Instead, earlier outlooks for gloomy news are being rapidly walked back. Earlier this week, for example, Goldman Sachs revised its recession risk downward, saying that there was now just a 15% chance of a recession in the next twelve months. Until fairly recently, the consensus had been that a recession would be needed to depress a high inflation rate. Now that inflation rates have fallen without massive layoffs, pundits are puzzled.

Things are not quite so rosy abroad.

After decades of astonishing economic growth, something has gone terribly amiss in China. A year ago, the country was commonly seen to be on a sure path to overtake the United States as the world’s largest economy. Now its leadership faces serious questions about whether its destiny is to replicate the fate that befell Japan thirty years ago. The marked slowdown in China’s economy has very broad implications for the entire global economy since China is among the leading trading partners of virtually every nation on the planet. That is a primary reason why forecasts for global trade going into 2024 are currently being revised downward.

There is also the matter of deteriorating business confidence in China’s openness to foreign companies. International business attitudes toward China have been shifting significantly since the outbreak of the COVID-19 pandemic. The fraying of diplomatic ties between Beijing and most Western capitals, the threat of military conflict over Taiwan, and the increasingly oppressive attitude of Chinese authorities toward foreign businesses seems almost purposefully designed to discourage foreign investment.

Mexico is poised to benefit from near-shoring as confidence deteriorates in the future of China’s economy and its role as the world’s factory floor. Analysts at the Federal Reserve Bank of Dallas are upbeat on Mexico’s economic prospects, especially as inflation shows signs of moderating. Owing to higher costs, Canada is much less likely to similarly gain from the risk-reduction strategies of investors. Canada’s economy unexpectedly contracted in the second quarter, falling at an annualized rate of 0.2%. It is widely expected that real GDP will slide from 3.4% last year to 1.7% this year, with a bottoming-out occurring in the current (3rd) quarter.

Mexico and Canada together now account for about 30% of all California exports. But, as we periodically remind readers, trade with Mexico and Canada is not the same as trade with Mexicans and Canadians. That is because a fairly large share of what we ship to both countries go to industries that chiefly produce goods for export, most commonly back to the United States. In a very real sense, our export trade with both Mexico and Canada is heavily influenced by U.S. demand for the goods produced by these export industries. So a growing American economy should normally lead to increased California exports to our immediate neighbors, especially of components and sub-assemblies for the automotive and consumer electronics sectors.