California's Exports Increase for the First Time Since 2000

Times Staff Writer

In another promising sign that California's economy is on the upswing, exporters in the state posted their first increase in merchandise shipments in nearly three years.

The trade statistics, released Thursday, provided further evidence that California's high-tech industry in particular is emerging from the doldrums. Shipments of computers and electronic goods, the state's leading export category, snapped a losing streak of 10 straight quarterly declines triggered by a worldwide collapse in technology spending.

Economists viewed the upturn as a harbinger of increased production and payroll growth in the state's long-beleaguered manufacturing sector. California is more dependent on foreign trade than the nation on average, with export activity providing jobs for more than 1 million workers in the state.

"It's an unambiguously good sign," said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. "It's certainly the first step toward job production" in the state's manufacturing industry.

Thursday's report showed that exports from California's farms and factories totaled a little more than $23 billion for the three months ended in September. Though that was up just $54 million -- a meager 0.2% -- from the comparable period last year, it marked the first year-over-year increase since the export sector began to falter in early 2001.

Analysts said California's merchandise exports, which account for roughly 8% of the state's economic activity, finally were benefiting from a reviving global economy and, in particular, a more favorable trading relationship with China.

A manufacturing force that has flooded American shores with low-cost imports, the Asian giant is upping its purchases of U.S. goods as well. China now is California's fourth-largest export market. As recently as 2000, it didn't even rank in the top 10.

China's demand for raw materials to feed its factories is being felt in California's Central Valley, where cotton farmers have seen prices soar in recent months, said Mark Bagby, a spokesman for the Calcot Ltd. cooperative in Bakersfield.

"All the textile production is shifting to China," Bagby said. "They are the ones driving this market right now."

Economists have been watching California's export market for hints of a rebound that has been slow in coming, largely because the state has been saddled with lingering problems in its technology sector. Through the first nine months of this year, the state's shipments of high-tech goods to foreign buyers totaled $26.3 billion, down 41% from the same period in 2000, according to the Massachusetts Institute for Social and Economic Research, which publishes official state-by-state trade statistics.

In the third quarter, high-tech exports still were down from year-earlier levels, but they were up 4.5% from the second quarter. Analysts interpreted the improvement over the quarter -- along with stronger earnings from tech companies and a pickup in venture capital funding -- as a sign of better times ahead for the state's most important export industry.

Other key industries showed healthy export gains in the latest quarter as foreigners boosted their purchases of a variety of California products, from scrap metal and chemicals to food and agricultural commodities.

Transportation equipment, which includes commercial aircraft and parts, was a particularly strong gainer, up 17% in the third quarter from a year earlier.

Fueling that rise were firms such as California Drop Forge, a Los Angeles maker of specialty aircraft parts. General Manager Dan Murphy said orders were starting to stir from the deep slump that followed the 9/11 terrorist attacks, which hit domestic airlines and aircraft makers particularly hard. To compensate, Murphy said, his company has aggressively pursued foreign buyers. This week alone he was entertaining clients from Germany before heading off to Canada to meet with prospects there. Such efforts already have paid off with a 10% boost in export sales this year, he said.

"It's a global market," said Murphy, whose firm is a division of Illinois-based Fansteel Inc. "You can't just limit yourself" to U.S. customers.

Nationwide, exports of goods and services rose $2.4 billion in September to $86.2 billion, the largest monthly increase in more than three years, according to a separate report from the Commerce Department. Yet the U.S. trade deficit still widened to $41.3 billion last month as a torrent of foreign-made cars, business equipment and consumer goods flowed into the United States. It was the largest monthly deficit since March and was largely attributable to a record $14.8 billion in imports from China, whose widening trade gap with the U.S. has become an increasing source of friction between the two nations.

Some lawmakers and labor leaders have come to view China as a threat to American prosperity at a time when the U.S. has lost more than 2.5 million factory jobs. But the flip side of China's development is that it's stepping up purchases of U.S. goods. To placate the U.S., Chinese officials announced this week that the Big Three automakers would be allowed to export more vehicles to China. The country also has agreed to buy engines and planes from General Electric Co. and Boeing Co., which has major operations in California.

Industries outside the political spotlight also are benefiting from China's ascension in the global marketplace.

Valencia-based Rio Tinto Borax, operator of California's largest open-pit mine, said sales of its industrial borates were growing faster in China than anywhere else on the globe. Borates are used in a wide variety of products, including fertilizers and consumer electronics such as cellphones and laptop computers.

"China is using our product in all that stuff," said Paul Warme, global marketing manager for Rio Tinto Borax. "It's going to be a real focus for us going forward."

Some analysts say California, perched on the Pacific Rim, home to three of the nation's largest ports and teeming with Chinese-born entrepreneurs, is uniquely poised to reap the benefits of a fast-developing China.

"We tend to think of China as stealing manufacturing jobs," said economist Ross DeVol, director of regional studies for the Santa Monica-based Milken Institute. "But China is an opportunity for us as well as a challenge. We in California are in a better position to exploit that opportunity than anyplace else in the country."

However, the state's brightening trade picture could be clouded by a potential trade war over steel. The World Trade Organization ruled this week that the Bush administration must rescind U.S. tariffs imposed on imported steel or risk retaliation on American goods sold overseas, including agricultural products such as citrus fruit. That could prove costly to the Golden State.

Foreigners bought one-third of the $800 million in fresh fruit sold last year by Sunkist Growers Inc., said Mike Wootton, vice president of the Sherman Oaks-based marketing cooperative.

"If it weren't for export markets, our growers would really be hurting," Wootton said. "We don't want to see anything that would be disruptive to that trade."

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Trading partners

The set of California's top trading partners remains steady, but the volume of goods sold to each partner has changed from last year.

*--* Volume sold Percent YTD in 2003 change Country (in billions) from 2002 Mexico $67.7 -2% Japan 10.8 -10 Canada 8.6 +1.6 China 8.3 +11 North Korea 3.6 +8

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Source: Massachusetts Institute for Social and Economic Research

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Times staff writer Don Lee contributed to this report.

For The Record Los Angeles Times Saturday November 15, 2003 Home Edition Main News Part A Page 2 National Desk 4 inches; 166 words Type of Material: Correction A table accompanying an article on California exports in Friday's Section A had the incorrect dollar amounts of goods sold this year to the state's top trading partners and the percentage changes from 2002. In addition, it identified North Korea as California's fifth-largest export destination. It should have said South Korea. Here are the correct data. *--* Value of goods sold Percentage Jan-Sept 03 change Country (in billions) from 2002 Mexico $10.8 - 10.5% Japan 8.6 +1.6 Canada 8.3 +10.9 China 3.6 +8.1 So. Korea 3.5 - 0.4 *--* Source: Massachusetts Institute for Social and Economic Research
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