What Does California Export? Let's Take A Closer Look

This article appeared in the Sunday Forum section of the Sacramento Bee on April 17, 2011.

Within hours of the March 11 earthquake and tsunami in Japan, my phone started ringing with calls from newspaper and wire service reporters. Mostly, their questions were eminently sensible: What impact would the catastrophe have on global trade or, more specifically, how might California's trade with Japan be affected?

Still, there was one classic "sorry-about-your-tragedy-but-please-understand-it's-really-all-about-us" moment when a writer for Women's Wear Daily called to inquire about the fate likely to befall those ultra-chic boutiques in San Francisco and Los Angeles that thrive by selling high-end fashions and accessories to Japanese tourists.

As we spoke, I could only imagine the wave of terror she envisioned sweeping down Rodeo Drive and the streets surrounding Union Square.

As the natural calamity segued into a nuclear nightmare, I kept a watchful eye on the media coverage. Perversely, I was lured into reading through the anonymous comments on newspaper stories online. It's hardly a safe harbor for civil discourse but an opportunity for trumpeting notions woven from a body of often pre-fab knowledge that's either hopelessly out-of-date or just plain hostile to fact. More alarming was my realization that many of these off-kilter renditions of reality were strikingly reminiscent of the earnest convictions I'd heard expressed by elected officials on those occasions when I've testified before legislative committees.

So let's deconstruct a few of the more persistent myths and misperceptions about California's export trade.

Myth: Were it not for our farms, ranches, dairies and wineries, California wouldn't have anything valuable to export.

This is something of a double-breasted canard, at once a faux tribute to the yeoman virtues of farming and a slur aimed at that nuanced elite of liberals and environmentalists whose affinity for high taxes and regulatory dictates has allegedly saddled California with the nation's most hostile business climate.

Although the belief that ag rules California's export trade is evidently shared by many up and down the Central Valley, it is not remotely accurate.

There's no question agricultural exports figure heavily literally in California's export trade. In 2010, they accounted for about one-fifth of the export tonnage we shipped overseas. But weight is crucially important only to those who actually have to transport goods. Most commonly, commerce is measured not by weight or by volume, but by value.

So how do California's farm exports stack up, dollar-wise?

The best source of data on California's agricultural export trade is the Agricultural Issues Center at the University of California, Davis. Their latest report covers 2008, a year in which they calculated the value of the state's farm exports to be $12.9 billion. That includes not just the cornucopia of fruits, nuts, vegetables and other specialty crops for which California is famed, but also a host of highly processed items that are, in effect, manufactured from agricultural products.

That figure $12.9 billion is a huge number, and it easily establishes California as the nation's top agricultural exporter. Indeed, according to data compiled by the U.S. Department of Agriculture, no other state comes even close.

Yet, 2008 was also a year in which California's overall merchandise export trade totaled $144.8 billion. So, despite its remarkable prowess, agriculture's share of the state's total exports that year as in all recent years did not rise above 9 percent.

Myth: California's economy is so pathetic that scrap metal and waste paper are our biggest exports.

This rhetorical head-fake is a staple of conservative talk radio, which is probably why it is a lamentation much echoed by some officeholders.

The funny thing is that California actually does have a thriving trash trade. And we're all the better for it. But let's not confuse weight for value.

Last year, scrap metal and waste paper exports from California's seaports weighed in at about 13.8 million tons and accounted for nearly one-third of the state's seaborne export tonnage.

Transporting all that refuse is a formidable source of logistics jobs, many of which chiefly, the unionized ones provide generous wages and benefits for California's blue-collar workforce.

But junk, it should astonish no one, isn't worth very much. Last year, the scrap metal we shipped overseas was valued on average at 19 cents a pound, while waste paper fetched just 8 cents a pound.

The combined export value of these recyclables was $3.5 billion or about 2.5 percent of California's total merchandise export trade.

Myth: We don't manufacture anything anymore that other countries want.

By now you may be wondering, just what do we export?

Because it's no secret that employment in California's manufacturing sector has declined appreciably over the past decade, it's widely assumed that manufacturing facilities in this state must be as rare as Republicans in Berkeley.

But manufacturing in California is far from dead. In fact, according to statistics from the U.S. Bureau of Economic Analysis, California's share of the nation's manufacturing output in 2009, the latest year for which data are available, was actually higher than it had been during the peak of the dot-com boom in 2000.

In dollar terms, manufactured goods continue to account for the vast majority of the Golden State's growing export trade.

Myth: California's share of America's export trade is shrinking.

If anything, there's ample reason to believe that our merchandise export trade is underreported. Consider the manner in which many of us now read books or watch films or listen to music. Increasingly over the past decade or two, anything that can be digitized will be. And anything that's been digitized, more often than not, will be shipped to market not in a package but via the Internet. In effect, broadband Internet service has joined ships, planes, trucks and railroads as a full-blown mode of transport.

But this creates a nettlesome problem for trade economists. Think of a software program written by a company in San Jose that is downloaded by an Austrian consumer from a server located in Singapore. How do you account for transactions like that?

There are no customs barriers on the Internet, which means that products traded digitally will generally elude the methods normally used to monitor trade, assess duties, enforce tariffs and collect useful trade data.

Further complicating matters is that many products that were once identified as tangible goods have been digitally transformed into intangible services. If bought in CD format, "Born This Way," the latest Lady Gaga album, is obviously a "good" that's not a value judgment, by the way. But the exact same music downloaded from iTunes to your iPod is legally regarded as a "service." Go figure.

Speaking of services, how does a service economy like California's compete in the global market?

When a San Francisco architect designs an office tower in Shanghai or a Brazilian tourist visits Disneyland or even when a Sacramento lobbyist counsels a Japanese corporation, these are all service exports. Last year, America's service export trade amounted to $545 billion, the equivalent of 42 percent of America's $1.3 trillion merchandise export trade.

Alas, there are no good statistics on service exports by state. It has long been estimated that California's service exports are roughly half the size of our merchandise export trade. Recently, though, researchers with the Brookings Institution took a stab at estimating the exports of both goods and services by the nation's 100 largest metropolitan areas, including 11 in California. According to their report, service exports among those California metro areas equaled 60 percent of the value of their goods exports.

Based on that sample, California's service export trade in 2010 would have amounted to $86 billion, or close to 16 percent of the nation's service export trade.

Myth: Exporting is an "On the Waterfront" thing.

You'd certainly get that impression from the images of huge oceangoing freighters laden with sturdy shipping containers that almost unfailingly accompany newspaper articles or television news reports on foreign trade. Classic movies from the noir era similarly reinforce the image.

Well, Brando's dead. In today's world, the vast majority of California's export trade goes nowhere near the waterfront.

In 2010, $30.7 billion or 21 percent of our exports went overland to Canada and Mexico. By comparison, seaports handled $40.9 billion or 29 percent of our export trade. That adds up to just about half of California's $143.3 billion exports last year.

How did the rest get to foreign markets?

Well, like most of us do when traveling abroad, they flew. That's right, California's airports principally LAX and SFO handled about as much of our export trade as did our seaports and surface transport modes combined. In the Bay Area, exports from the sprawling Port of Oakland last year totaled $10 billion, while air freight exports from SFO amounted to $22 billion.

There is no question that our seaports do the heavy lifting, especially when imports are involved. Cargo shipped by air typically has a high value-to-weight ratio, like integrated circuits whose export value last year averaged $592 a pound.

But high-tech equipment is not the only thing to be air-shipped. California has a growing airborne agricultural export trade valued at about $800 million, including $372 million in fresh fruits and vegetables and even $1.2 million of breeding swine.

So, yes, pigs do fly.