What growing global trade means for Los Angeles area businesses
While global trade has slowed in recent years, the greater Los Angeles region still handles a massive share of all the trade passing through the United States each year, according to a pair of reports that will be released by the Los Angeles Economic Development Corporation on Friday.
International trade slows but is still strong
The second report, the “11th Annual International Trade Outlook 2016-2017,” notes that 2015 was a volatile year, punctuated by a slowdown and rebalancing of China’s economy, plunging commodity prices, geopolitical unrest and appreciation of the U.S. dollar.
Those factors conspired to undermine consumer and business confidence, both here and abroad. Global trade continues to grow, the report said, but 2015 was the fourth consecutive year of annual growth rates below 3 percent. While still positive, that remains far below pre-recession growth rates.
Moderate growth expected this year with a pickup next year
The World Trade Organization expects global trade to continue with a moderate growth rate of 2.8 percent this year and a potential pickup in 2017 to 3.6 percent.
The value of total trade moving through the Los Angeles Customs District (LACD) in 2015 reached $393.8 billion. That was down 5.7 percent from the previous year, but it still accounted for 10.5 percent of all U.S. trade.
Imports outpace exports
The report additionally shows that Southern California’s import activity continues to outpace its export operations. In terms of trade volume, 135.9 billion tons of cargo was moved through the LACD in 2015, and the volume of imports was more than twice that of exports.
“That issue will not be addressed easily,” Cheung said. “It has to do with demand. U.S. consumers want cheap products that are made elsewhere and that’s what’s driving the input from other countries.”
But the U.S. has a bigger hand in the reported number of exports than figures show, he said.
“About 40 percent of the products that are exported from Mexico to other countries have some components from the U.S.,” he said. “Some of the assembly is done here. And for higher-end, more complex electronics all of it is done here because other nations don’t have the expertise that’s needed.”
China, the nation’s biggest trading partner, also accounted for more than 40 percent of total trade with the LACD in 2015, reaching $149 billion.
The volume of trade handled through the San Pedro ports grew by 1.3 percent over 2014. The Port of Los Angeles handled 8.2 million TEUs (20-foot-equivalent containers) of merchandise, a decline of 1.2 percent from 2014. But the Port of Long Beach handled 7.2 million TEUs, an increase of 5.9 percent over 2014.
Vantage LED seeing more exports
Vantage LED, an Ontario-based business that makes the massive digital display screens that are seen at many Las Vegas casinos, is doing fine, according to Ivan Perez, the company’s director of resource development.
“About 85 percent of our products are sold in the U.S.,” he said. “But we’re also exporting a lot to South America, Australia, Mexico and Canada. And we’re also starting to put a footprint into western Europe. We’re starting to see more exports.”
Trade flows in the LACD are dependent upon what occurs in the larger U.S. economy and abroad. Forecasts for real GDP growth in the U.S. are moderate, while the global economy still faces continuing challenges. The stronger value of the dollar will negatively impact export growth because that makes U.S. products more expensive. But demand for imported goods should remain strong as long as domestic job growth and disposable income perform as expected and result in increased consumer spending, the report said.
According to IHS Maritime & Trade, total container traffic at the Los Angeles and Long Beach ports is expected to grow by approximately 5 percent in 2016 and by more than 6 percent in 2017.
The foreign investment report was published by World Trade Center Los Angeles and prepared by the Los Angeles County Economic Development Corp. The LAEDC also prepared the trade report.