California Forum

Questioning the trade numbers with Mexico

With Gov. Jerry Brown leaving today on a four-day trade mission to Mexico City, it’s a good time to set aside our obsession with illegal immigration and consider just how much California profits from doing business with our southern neighbor.

At a Sacramento luncheon last week, Brown and visiting Mexican Foreign Affairs Secretary José Antonio Meade Kuribreña highlighted the importance of cross-border trade by referencing Mexico’s status as California’s leading export market.

Last year, according to a trade mission briefing book compiled by the California Chamber of Commerce, the state’s merchandise export trade with Mexico totaled $23.9 billion, well ahead of our exports to Canada ($18.9 billion), China ($16.3 billion) or Japan ($12.7 billion).

But, while there is no question that Mexico is California’s top export market, are Mexicans our most valuable foreign customers?

On this issue, the available statistics could not be more ambiguous.

Let’s look at those numbers.

For starters, the state export figures published by the U.S. Department of Commerce are a bit of a fraud.

Most people understandably assume they indicate where the exported goods were manufactured, grown or otherwise produced. They don’t.

Owing to some extraordinarily lax accounting rules, exports are often attributed to the state from which they left the country.

Here’s one example of data distortion. The Commerce Department ranks Louisiana as the nation’s leading wheat exporting state. But that’s only because much of the nation’s wheat exports are barged down the Mississippi River to New Orleans for loading aboard ocean-going ships.

Since it’s impossible to tell Kansas wheat from Iowa wheat, federal regulations permit shipping clerks to label wheat leaving the Port of New Orleans as a Louisiana export.

Something very similar, but involving a much wider spectrum of products, occurs on the Texas border, with a major bearing on the data on California’s export trade with Mexico.

Most of Mexico’s major population and industrial centers lie directly south of Texas. Not surprisingly, the overwhelming majority – 82.5 percent last year – of all U.S. exports sent to Mexico by truck, rail or pipeline pass through Texas. By contrast, just 11.1 percent of U.S. exports to Mexico crossed the California-Mexico border.

As in the case of wheat shipments via Louisiana, products made elsewhere in the United States that are temporarily warehoused in Texas prior to being shipped south risk being misidentified as Texas exports by chronically harried shipping clerks, for whom accuracy seldom appears to be a priority.

That helps explain why the Commerce Department’s trade statistics credited the state of Texas with a preposterously high 44.6 percent of all U.S. exports to Mexico last year, while California’s share was a slender 10.6 percent.

Nowhere is the extent of misidentification clearer than in the case of U.S. exports of “computers and electronic equipment,” a category of products in which California and Texas are close rivals.

In 2013, U.S. exports of computers and electronic equipment worldwide totaled $205.4 billion – 23.5 percent of that trade was attributed to Texas, while California’s share was 20.6 percent. Of the $27.4 billion of American computers and electronic equipment exports that went to Canada last year, California’s share was 20.3 percent and Texas’ was 13.7 percent.

Astonishingly, though, Texas was determined to be the exporter of 65.6 percent of all computers and electronic equipment products shipped by U.S. firms to Mexico last year, while California’s share was an inconceivably meager 12.7 percent.

So, provisionally at least, there is ample reason to believe that California’s export trade to Mexico is significantly higher than the Commerce Department’s statistics state.

But before laying claim to a greater share of U.S. exports to Mexico, we might first want to do a bit of subtraction to compensate for something called re-exports.

These are previously imported goods that, by definition, have undergone no material change during their stay in this country and therefore have a fairly negligible economic impact.

Consider the case of a California wholesaler who imports toys from Asia for distribution to retailers through North America. A consignment shipped to a Tijuana department store would be a re-export attributed to California. But, other than supporting a handful of warehousing and transportation sector jobs, the shipment of the goods adds very little to California’s bottom line.

This is not a small matter. About 22 percent of California’s overall export trade involves goods that were not even produced in the U.S.

So, if we are interested in determining how much California’s economy benefits from our export trade with Mexico, we need to discount the role re-exports play in that trade. While at it, we might similarly subtract the value of goods produced in other states that were erroneously labeled as California exports as they traveled to Mexico via our southern border.

Admittedly, this adding and subtracting gets us not much closer to answering the simple question: How much is our export trade with Mexico worth? So let’s now muddy the issue further by doing some division.

As conventionally understood, merchandise exports are goods produced in one country that are sold to residents of other nations for their use.

The obvious economic gains to the country, state or municipality producing the traded goods explains why political leaders from President Barack Obama on down enthusiastically embrace export growth as a key public policy goal.

And no doubt one major reason for Brown’s visit to Mexico this week is to boost California’s exports to Mexico.

But here’s the rub: to which Mexico? In a very real sense, there are two of them.

There is, of course, the indigenous economy populated by 120 million Mexicans and the businesses that serve them. But there is also the “maquiladora sector,” a virtual archipelago of manufacturing operations which are almost entirely owned by American, European and Asian multinational corporations, which import the vast majority of their components, and which export nearly all of their products – primarily to the United States.

Unfortunately, the available data do not permit a clear distinction to be drawn between the goods California businesses ship to Mexican consumers and the goods bound for the industrial parks inside the maquiladoras.

However, since industrial machinery and components – stuff that goes into stuff – rather than consumer goods constitute the bulk of California’s overall export trade, it is probable that the majority of our exports to Mexico are destined for the multinational corporations and not Mexican-owned businesses and their customers.

Given the quality of the data, it is probably safe to say that Mexico is California’s leading export market, even though Mexican consumers aren’t.

Mark Twain, who famously impugned the value of statistics, must be smiling.