State Exports Fall Amid Tariffs, Sluggish Foreign Demand

Below are excerpts from Beacon Economics’ monthly California Trade Report, which analyzes data released by the U.S. Census Bureau’s Foreign Trade Division and pinpoints important trends in the state’s import/export industry. To read the entire report, visit https://beaconecon.com/publications/california-trade-report/.

California exports in June continued to be battered by unfavorable tariffs overseas, weaker-than-normal foreign demand, and failure in the United States to suppress and contain the COVID-19 pandemic, according to Beacon Economics’ analysis of the latest U.S. trade statistics released by the U.S. Census Bureau.

“But as bad as these numbers look on the surface—they actually show improvement from May,” said Christopher Thornberg, founding partner of Beacon Economics. “Last month, trade was down 30% from the previous year, suggesting that we are at least on the road to recovery, even if we have a long way to go.”

California businesses shipped a total of $11.707 billion in merchandise abroad in June, a nominal 16.3% decline from $13.989 billion in exports recorded in June 2019. Shipments of manufactured products by California firms were down 18.7% to $7.319 billion from $8.998 billion one year earlier. Similarly, exports of non-manufactured goods (chiefly the state’s agricultural products and raw materials) were off by 14.1% to $1.486 billion from $1.730 billion. Moreover, as has been the case in the last several months, the state’s export numbers were further pulled down by an 11.0% drop in re-exports, which fell to $2.903 billion from $3.261 billion.

“What we’re seeing is what happens when sluggish foreign demand meets a reduced domestic capacity for producing and delivering tradeable merchandise,” said Beacon Economics’ International Trade Advisor Jock O’Connell. “Economies around the globe are grappling unevenly with how quickly to resume normal business operations without sparking further outbreaks of the COVID-19 virus. At the same time, supply chains and transport services have been severely disrupted, making it more difficult and costly to ship goods from here to there.”

Still, California fared better than the nation as a whole. Total U.S. exports for June were off by 23.9% from one year ago, falling to $105.043 billion from $138.063 billion. As a result, California’s share of the nation’s overall merchandise export trade in June jumped to 11.1% from 10.1% in June 2019.  The drop in California’s exports was roughly consistent with the 14.4% decline in containerized exports through the Ports of Los Angeles, Long Beach, and Oakland as well as the 8.9% fall-off in airborne export tonnage from LAX.

There were a few bright spots. Export shipments of almonds, California’s leading agricultural export, were up 8.2% at 116.86 million pounds in June. However, shipments to China/Hong Kong were off by 43.4%.

The state’s exports of manufactured products suffered from widespread factory closures in June, including prominently the Tesla facility in Fremont, which effectively choked off exports of electric automobiles and contributed to an exceedingly subpar level of exports in transportation products.

Over the first half of this year, California’s $73.799 billion year-to-date export trade was running 15.0% behind last year’s $86.801 billion pace.

Leading Export Commodities

California’s merchandise exports during this year’s second quarter totaled $32.602 billion, a nominal fall of 25.3% from $43.623 billion in the same months a year earlier. Nine commodity groups posted exports of at least $1 billion, with just one seeing year-over-year gains and eight recording declines. Three other commodity groups which typically generate more than a billion dollars in exports per quarter failed to meet that mark in the second quarter of this year.

On the plus side, exports of Food and Kindred Products rose 3.7% to $2.473 billion from $2.386 billion.

On the down side, exports of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) slumped by 17.5% to $8.243 billion from $9.992 billion.

Export Destinations

Mexico clung to its rank as California’s leading export destination, even though shipments south of the border fell 33.1% to $5.007 billion from $7.485 billion. Canada also kept its title as the state’s second largest export market by importing $3.620 billion in goods from California, a decline of 15.4% from $4.281 billion one year earlier. California’s exports to third-place China fell by 18.3% to $3.395 billion from $4.155 billion.

Japan came fourth with imports of California goods totaling $2.821 billion, off by 5.4% from $2.983 billion one year ago. Rounding out the state’s Top Five export destinations was South Korea with $2.445 billion in imports from California, up 2.3% from $2.503 one year earlier.

Not surprisingly, California’s exports to troubled Hong Kong dropped by 31.4% to $1.433 billion from $2.089 billion. Exports to post-Brexit United Kingdom slipped by 32.5% to $928 million from $1.374 billion one year earlier when it was still a member of the European Union.

Regionally, California exports to the economies of East Asia fell 13.2% to $13.524 billion from $15.578 billion in the corresponding months one year ago. Meanwhile, California’s exports to the now 27-nation European Union in the latest three-month period dropped by 29.4% $5.434 billion from $7.717 billion.

Mexico and Canada together accounted for $8.627 billion of California’s $34.460 billion export trade in the latest three-month period. That represented a 25.0% share of the state’s total merchandise export trade, down from 26.0% one year ago. Exports to our two USMCA (U.S.-Mexico-Canada Agreement) trading partners in the latest quarter fell by 26.7% from $11.767 billion one year earlier.