California’s 2023 export trade numbers are up…will they stay that way?
Eight straight days of heavy, destructive rainstorms were forecast for technology and agriculturally driven Northern California in mid-March but weather aside, the State’s export economy is glowing from 2022’s trade results. However, the non-inflationary outlook for the current year, like the weather, is mixed.
California’s merchandise export trade was boosted “significantly” even though its share of the nation’s trade totals remained below pre-pandemics levels, according to an analysis of freshly released U.S. Foreign Trade Division statistics by Beacon Economics of Los Angeles.
January’s value of California’s exported goods totaled $14,976 billion, up 9.3% over the $13,707 billion the state exported in January 2022. Shipments overseas of manufactured goods were hiked by 15.9% to $10,025 billion from $8,650 billion a year earlier. Agricultural products and raw materials exports grew 2.9% to $1.7 billion. Re-exports, however, slipped by 1.7% to $3,212 billion.
“What’s especially encouraging is that after stripping away the impact of price inflation, the real value of California’s merchandise export trade this January was up estimated 7.4% year-over-year,” said Jock O’Connell, Beacon Economics’ international trade advisor, in a statement.
Crunching California Numbers
Yet, there is conflict in the claims and number crunching. “California exports reached a record high in 2022, with companies here exporting $188.5 billion worth of goods to the world,” contends Susanne T. Sterling, vice president, international affairs, California Chamber of Commerce.
However, O’Connell said in exclusive interview with the AJOT, “the fact is we’ve seen substantial inflation in export prices recently so if you go back and look at reasonably adjusted export figures for the last 10 years, I am confident you will find the peak total export value for the state to be somewhere in the past. Beacon Economics calculates that California’s merchandise export trade actually peaked in 2018.
The continued growth of the state’s current export strength is in question for another reason. “One thing that is likely helping (currently) is that the U.S dollar is coming off the record-high levels seen last October, making the nation’s exports more competitive,” said Christopher Thornberg, founding partner of Beacon Economics. “It is still high relative to pre-pandemic levels but will likely fall further as the global economy continues to pick up steam.”
Imports for January compiled by the U.S. Department of Commerce indicate that California was the state of destination for 14.2% of all U.S. merchandise imports. Total imports slipped, however, from $40,611 billion in January 2022 to $36,153 billion for the first month of this year, an 11% decline.
Beacon Economics has long been wary of the federal government’s state-of-destination statistics. The concern is that the data captures not just goods that are consumed by California residents or businesses but a “sizeable portion” of imported merchandise offloaded at California ports which are trucked, railed, or flown to other U.S. markets.
Exports From The World’s 4th Largest Economy
California’s top export sectors in 2022 were computer and electronic products which accounted for 22.4% of what the state sold beyond its borders, said Treyland Bradley, deputy director of sustainable freight and supply chain for its GO Biz unit. Ranking second was non-electrical machinery (11.7%) then chemicals (9.5%), transportation equipment (9.0%), miscellaneous manufactured goods (7.6%), and agricultural products (7.5%).
More specifically, Bradley continued, California’s top exports in 2022 were semiconductors and other electronic components (6.0%), industrial machinery (5.8%), fruits and tree nuts (5.4 %), navigational and medical instruments (5.3%) and pharmaceuticals and medicines (4.7%). In the last five years, chemicals have shown the strongest export growth, he added.
California state’s Bradley also told AJOT the “value of trade data is really imperfect and sure inflation has had an impact on the numbers.” Instead, analysts, investors and other businesspeople have to look exceptionally close at specific facilities, current and planned, for their own expansion planning.
Still, there are plenty of opportunities for businesses and traders in “the world’s fourth largest economy”— California to locate near supply chain venues such as the state’s 12 ports alone, particularly the medium and smaller ports, he points out.
For example, Bradley cited the inland deepwater Port of Stockton, as a shipping link to the Pacific for growing tonnages of soda ash, and Port Hueneme’s ro/ro capabilities for its strong throughput for vehicles. “California’s investing heavily in supply chain infrastructure. One of our most exciting inland projects is the Class I BNSF railroad international gateway in Barstow valued at $1.5 billion.” Once a small waystation for Los Angeleans driving to Las Vegas, he said Barstow “now sees itself as a railroad town.” And this doesn’t include the role Californian ports like San Diego and Oakland play connecting Hawaii to mainland North America.
He further said California is spending heavily to capitalize on its proximity to its major trading partners—Mexico being the largest, Japan being its second biggest. Some $1.2 billion is earmarked to supporting the state’s ports and freight corridors, $30 million toward new data systems development at the marine ports, $100 million drayage program that will require use of heavy zero emission trucks.
Added Bradley: “A lot of firms built up inventory during the pandemic, there is still a lot of inventory to be pushed out and for shippers there is an unprecedented demand for (capacity). We are committed to improving our supply chain.”
Solutions cannot come fast enough, opined O’Connell of Beacon Economics. “We simply don’t have the methodology on the export or import side that tracks a product from where it is manufactured or grown and answers the operative question—'where did this shipment begin its journey into international trade’? That winds up skewing the trade data.”
California’s Trade Future
Looking ahead, how will California’s merchandise trade volume picture shape up for 2023? David Harlow, president of Harlow FTZ Consultants, Los Angeles, a 20-year-old nationwide advisory to foreign trade zone operators, said entering this year, “we are seeing a downturn in the economy for imports and exports, particularly related to the retail industry. This would be consumer products, finished goods you would purchase in the retail or e-commerce environment.”
Harlow, however, said volume of goods in the manufacturing sector, raw materials, goods related to energy efficiency will plateau or even improve which is a good sign for 2024.
On transport modes, does the FTZ consultant see the air freight industry retaining its strong cargo levels that it reached in 2022 when ports were clogged by impact of pandemic and other supply chain jam-ups? “The air freight industry is dropping because retail is dropping and there is more maritime capacity. On the other hand, the growing markets for semiconductors and alternative energy creates more demand for air freight. So, you will see a subtle drop or a plateau for air freight.”
As for the outlook for foreign trade zones, Harlow is bullish. “FTZ’s help businesses grow and stay in the United States and they’ve experienced strong growth in the last five years.” But now they are taking on obstacles such as the China tariff freight quotas by and assisting businesses by navigating other (hindrances) that hobble trade, he added.
