Trade in Southern California Expected to Slow This Year
On the heels of exceptionally strong growth last year, Southern California trade will slow dramatically in the coming months due to a sluggish global economy, a strong dollar and political turmoil in Asia, according to a report being released today.
Two-way trade through the state’s leading gateway--the five-county Los Angeles Customs District--will expand by a modest 2.8% to $236.5 billion in 2001, down from last year’s 16.7% expansion, predicts the Los Angeles County Economic Development Corp.’s International Trade Report.
Exports will expand just 1.5% to $78.8 billion, while imports are expected to grow 3.5% to $157.7 billion.
With its strong base of diverse global players such as Walt Disney Co. and Boeing Co., Southern California is expected to fare better in 2001 than San Francisco, which faces a 4.3% drop in port traffic due to the collapse in technology sales, according to the LAEDC.
Economic signals about the severity of the U.S. slowdown remain mixed. The U.S. Commerce Department reported Wednesday that factory orders increased a bigger-than-expected 1.8% in March, buoyed by strong transportation spending. Apparent progress on a deal to avert a threatened writers strike in Hollywood also is good news for Southern California, a leading exporter of films, music and television programming.
Air cargo shipments have been declining since last fall and shipments through California’s ports have fluctuated monthly since the first of the year.
But Jack Kyser, chief economist for the LAEDC, warned against hopes of a quick trade turnaround given the U.S. inventory overhang, consumer wariness, new leadership in Japan and political tensions with China that threaten to spill over into the economic sphere.
“This is going to be a year where you have velocity shock,” warned Kyser. “[Traders] recorded this spectacular growth last year but this year you will see a much more modest growth and even declines for the San Francisco Custom’s District.”
A slowdown in trade will be felt across the state, from Silicon Valley’s tech giants and Central California farmers to Southern California’s aerospace companies, traders and port workers. The LAEDC is predicting a decrease in growth in nonfarm employment in California from 3.8% in 2000 to 2.1% this year, in part due to the bleaker trade picture.
But the northern half of the state will bear a much greater share of the pain because of its dependence on the technology firms that have been hardest hit by cutbacks in business spending and the stock market slump, said Edward Leamer, director of the UCLA Anderson Business Forecast.
“Northern California is in the midst of a significant slowdown, in fact a recession, but I don’t expect Southern California to be affected as much by the external turbulence.”
Leamer pointed out that the domestic impacts of the U.S. slowdown have been muted somewhat because employment cutbacks by multinationals are being spread across a global manufacturing network.
But he expects California firms to start feeling the pinch in the coming months as their hardest-hit trading partners, particularly in technology-dependent Asia, cut back more sharply on purchases of U.S. goods. That trend will be further exacerbated by the strength of the dollar, which makes U.S. products more expensive overseas.
“There is going to be more global slowing,” he said. “The locomotive has been the U.S. and we’re not the locomotive anymore.”
In spite of worsening economic performance last year, Japan retained its position as Southern California’s leading trading partner with $51.9 billion in two-way trade. But thanks to strong exports China came in second at $43.5 billion in trade, followed by South Korea ($19.2 billion), Taiwan ($18 billion) and Malaysia ($11.3 billion). However, those customs district numbers underestimate the impact of trade with Mexico and Canada because it doesn’t capture products that move directly across the border.
Other federal data, which more accurately tracks export flows, show that Mexico was the state’s leading export destination last year followed by Japan, Canada and South Korea, according to the LAEDC report.
China’s move up the trading ladder illustrates the vulnerability of California companies in the fallout from escalating tensions in the U.S.-China relationship, such as the recent spy plane incident. Critics in Congress have vowed to fight China’s pending membership in the Geneva-based World Trade Organization. Membership in the WTO will force China to adhere to global trade rules and open its markets more widely to imports.
“China is very, very important to us for a whole variety of reasons,” said the LAEDC’s Kyser. “When they get mad at the U.S. who do they punish? They punish Boeing. And Boeing is our largest employer in Southern California.”
Southern California companies have a lot to gain from greater access to China. High tariffs, red tape and other barriers have limited U.S. exports to China, contributing to a 25.8% increase last year in this region’s trade deficit with that Asian country. China shipped $38.7 billion through Southern California last year but only $4.8 billion worth of goods went the other direction.
