The escalating trade war highlights the need for California to pursue new avenues for export growth, particularly among small and medium-sized businesses. Success will require a level of commitment and coordination not seen since the elimination of the state Technology, Trade and Commerce Agency in 2004.
President Donald Trump’s strategy of imposing tariffs to leverage better trade deals may benefit some U.S. businesses and regions, but the approach will hurt many of California’s 72,665 exporters, which account for $172 billion a year in overseas sales and support 684,000 jobs.
Retaliatory sanctions from China and other nations already target $5.6 billion in California exports, including cars, steel and fruit. If the tariffs remain in place, the state’s exporters will sell less and employ fewer people in the coming years.
Although state leaders can’t override federal trade policy, they have tools to expand overseas markets and help California companies sell their products abroad. The governor and the Legislature should pay special attention to the untapped export potential of small and medium-sized businesses of fewer than 500 employees.
Across the country, only about 5 percent of companies export, but small and medium enterprises make up 97.5 percent of them. Their $429 billion in export revenue, however, is just one third of the U.S. total. A 15 percent increase in their exports would add $64 billion to U.S. trade revenue, equal to the trade deficit with Germany.
Smaller companies face barriers to financing and limited expertise. The federal government provides some assistance, including market information, export loans and limited credit insurance.
California’s efforts fall far short of what these companies need. In a report by McKinsey and Company, the state’s economic development office had the lowest overall client satisfaction rating and fewest staff positions among 17 states surveyed. The closing of the Technology, Trade and Commerce Agency eliminated nearly all of the state’s overseas export offices and significantly reduced the number of state employees dedicated to promoting trade.
California can do better. Improving economic development and exports should be a high priority. Other states have benefitted from doing so. We need more engagement in both the governor’s office and the Legislature. More staff and increased funding for the trade office of the Office of Business and Economic Development is essential, as is more effective collaboration among the state’s regional trade and export offices.
The recent changes in national trade policy don’t change the fact that our prosperity depends on access to global markets. California has a powerful international brand, but marketing it successfully will require a more determined and better-coordinated effort.
Kevin Klowden is chairman of the U.S. Department of Commerce’s Trade Finance Advisory Council and executive director of the Milken Institute’s Center for Regional Economics. He will host a session on trade Tuesday at the institute’s California Policy Summit in Sacramento and can be contacted at firstname.lastname@example.org.