California’s Reliance on Pacific Rim Trade Partners Falters

While it may seem “counter-intuitive,” California’s merchandise export trade with Europe has been up nearly 13% over the latest three months while the state’s exports to the Far East declined by 3.2% during the same period. Further complicating this picture is that this occurred despite a 16.9% jump in the value of shipments to China.

According to Christopher Thornberg, Beacon Economics’ Founding Partner, this statistical aberration has yet to run its course.

“As has been the case since late last summer, a substantial decline in exports of personal computer components has been the primary factor in restraining California’s outbound trade,” he says. “In the latest three months, the state’s exports of those items fell 21% from the same period a year earlier.”

Thornberg is one of California’s most widely reknowned economists, who is on record as being the first forecaster on the West Coast (and one of the earliest in the nation) to predict the subprime mortgage market meltdown that began in 2007, and the global economic recession that followed.

He now maintains that consumer preference for smartphones and tablets over PCs has prompted a thorough restructuring of global supply chains in the electronics components sector. The decline hasn’t dramatically affected the tech-heavy San Francisco Bay Area economy, however.

Thornberg observes that it is “re-exports” –  products that are shipped in from one nation and then shipped back out to another nation in essentially the same form – that make up the bulk of the decline. For example, U.S. companies often import computer components from Asia and then ship them to Mexico for assembly.

“Re-exports are typically goods in transit, and their contribution to the state’s economy is comparatively negligible,” Thronberg says.

“They may support a very small number of jobs in the transportation and warehousing sector and they may profit the firms that orchestrate these transactions, but that’s about it.”

Beacon Economics’ current outlook for the state’s exporters is for modest rather than robust growth. The new U.S. competitiveness has allowed exports to remain stable despite grim news on the global front. However, in the short term the United States and California will have to look internally for growth, which is being helped by a resurgent housing market and rising worker incomes.

“It does appear that Europe has found a bottom, and with Japan continuing to stimulate their economy and better numbers on consumer spending from China, we hope that export growth will return by next year,” Thornberg says.

Finally, it’s import to note that California exporters are still heavily reliant on Pacific Rim trading partners.

Mexico remains the state’s top export market, despite a 15.4% drop in shipments. Canada retained its rank as the state’s second largest customer, although China is quickly closing the gap. Japan and South Korea continue to round out the list of the top five foreign customers for California products.

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