California Posts Gain in Exports Despite Asia

Even with an expected, dramatic decline in the shipment of goods to Asia, California’s exports rose 6% in the first quarter over the same period last year, outpacing the 4.7% national average and surprising analysts.

An unexpected surge of shipments to Europe and continuing gains in Mexico boosted the state’s overall merchandise exports, even as California’s exports to Asia fell sharply, trade officials said Thursday.

The first-quarter increase matched the growth rate for all of 1997. Analysts had been expecting Asia’s financial crisis to take the steam out of California’s important export sector. But that has not happened yet.

“Considering the uncertainty in Southeast Asia, it’s a very solid growth,” said Lee Grissom, secretary of California’s Trade and Commerce Agency, which released the figures. “I think it shows the strength of the diversified California economy.”

Grissom, however, believes exports to Asia are likely to deteriorate further this year. In the first quarter, the state’s total shipments to the top 10 Asian nations declined by 12%. Those countries account for about half of the value of California’s exports.

Businesses felt the biggest pinch from South Korea, where California exports plunged by 42%, or $750 million, from just a year ago. Shipments of virtually all capital goods and raw materials dropped dramatically, with only agricultural crop products showing an increase.

Park Tae Young, South Korea’s minister of Commerce, Industry and Energy, likened the current conditions in his country to the Great Depression in 1929.

But in an interview in Los Angeles, where he spoke at a conference to encourage foreign investments in Korea, Park said he thinks the decline of U.S. exports to his country already has hit bottom. He predicted exports to his country should start climbing again in the second half of this year.

Last year, South Korea was California’s fourth-largest export market, behind Japan, Mexico and Canada. But in the first quarter, Korea fell to eighth, and Thailand, Indonesia and Singapore also dropped significantly.

In California, these declines in Asia were more than offset by deliveries of industrial machinery, computer and electronic equipment to Mexico and Europe. The European economy, in particular, appears to be coming back robustly after a long stretch of sluggish growth.

California exports to Belgium jumped by more than 50% in the first quarter, as they did to the Netherlands, now the state’s seventh-largest market. Grissom said the Netherlands has emerged as a hub of new technology. California’s industrial machinery and computer shipments to Holland surged by 80% in the first quarter after a 53% increase in 1997.

Meanwhile, California exports to France and Britain--the state’s top European trade partners--both jumped by 14%.

“I can tell you, Europe is hot,” said Richard Swanson, an international trade specialist at the Commerce Department’s office in Newport Beach. He said companies are continuing to shift focus away from Asia to Latin America and Europe, a sign that bodes well for the future of trade and the state’s economy.

As with many other export companies in California, Tiernay Metals in Redondo Beach relied largely on Asia for its revenue growth in recent years. But since Asia’s financial crisis became apparent last year, the company has been turning more to Europe, and sales there are strengthening while they are slowing in Asia.

“We are reintensifying our efforts in Europe because of the softness in Asia,” said Robert Stoltz, president of Tiernay, a maker of aluminum extrusions for aircraft. Tiernay does about $100 million in annual sales, about 40% of that in exports. “We are allocating more resources and marketing dollars there,” he said.

California exporters also are finding new markets in Mexico, which is creeping up on Japan as California’s biggest export customer. In the first quarter, California shipments to Japan dropped 12% to $3.9 billion, but they increased 31% to Mexico to $3.2 billion. Exports to Mexico surged by 33% for all of 1997, driven by orders for electronics and industrial machinery.

Carlos Valderrama, director of Latin American operations for the Los Angeles law firm Carlsmith Ball, sees no slowdown in the demand for those goods. Many Mexican companies are revamping their production to be more competitive in the face of the North American Free Trade Agreement, while more multinational firms are building factories in Mexico, he said.

“As these big companies set up manufacturing facilities in Mexico, they are beginning to attract suppliers with them,” Valderrama said from his office in Mexico City. “We are beginning to see a new wave of small- and medium-size companies, and they also have to increase manufacturing capabilities to become more competitive.”

Despite Asia’s overall problems, California exports to Taiwan grew by 18% in the first quarter. It is now the state’s fourth-largest export market. Exports to mainland China increased by 26%, but shipments to Hong Kong declined by 3%.

California exports to Australia, the state’s 11th-largest market, also jumped early this year. Led by a surge of shipments of primary metal products, exports to Australia increased by 52% in the first quarter to $795 million.

For all countries, California exports totaled $26.6 billion in the first quarter. The state’s top two export sectors--electronics and electrical equipment, and industrial machinery and computer equipment--accounted for more than half of all shipments.

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Leading California Export Markets

A comparison of first-quarter exports last year with this year’s first quarter demonstrates Southern California’s economic diversity. With Asian exports declining, European exports showed a surprising and compensating upturn. In millions of U.S. dollars:

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First-quarter First-quarter Percent Country 1997 1998 change Japan $4,483 $3,931 --12.3% Mexico 2,460 3,210 +30.5 Canada 2,861 3,109 +8.7 Taiwan 1,361 1,608 +17.9 United Kingdom 1,282 1,458 +13.7 Singapore 1,337 1,190 --11.0 Netherlands 667 1,021 +53.0 South Korea 1,751 1,008 --42.4 Germany 990 997 +0.7 Hong Kong 950 918 --3.4 Australia 524 795 +51.9 Malaysia 614 675 +9.8 France 586 670 +14.3 China 434 546 +25.7 Belgium 284 439 +54.7 Total 25,010 26,580 +6.3

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Source: California Trade and Commerce Agency