Trade: The Global RecessionTrade: The Global Recessionand Future Prospectsand Future Prospects

Jon HavemanJon HavemanFounder and Principal, Beacon EconomicsFounder and Principal, Beacon Economics

• Global tradeGlobal trade• US tradeUS trade• Trade through CaliforniaTrade through California• Future prospects for trade Future prospects for trade

– US– California

• Competitive PressuresCompetitive Pressures• SummarySummary

World Trade Experienced an World Trade Experienced an Unprecedented CollapseUnprecedented Collapse

Trade Decline in Historical PerspectiveTrade Decline in Historical Perspective

Exports Have Declined for ALL CountriesExports Have Declined for ALL Countries

……and Relative to Recent Recessionsand Relative to Recent Recessions

Four Major Traders w/Major Four Major Traders w/Major Trade ContractionsTrade Contractions

• Trade fell for all countriesTrade fell for all countries• Trade fell across all commoditiesTrade fell across all commodities• Trade fell by about 4.8 times more than world Trade fell by about 4.8 times more than world

GDPGDP– Integrated supply chains: same value added crosses

multiple borders before delivery• Why?Why?

– Commodity prices tumbled– Consumers and producers in US and elsewhere came

to a standstill in late 2008

08-II 09-II Ch Cont. GDP 13415 12901 -3.8%

Personal consumption 9351 9189 -1.7% -1.2% Durable goods 1175 1071 -8.8% -0.8% Nondurable goods 2081 2025 -2.7% -0.4% Services 6092 6078 -0.2% -0.1%

Gross investment 2026 1456 -28.1% -4.2% Structures 493 400 -18.9% -0.7% Equipment software 1097 876 -20.2% -1.6% Residential 462 344 -25.6% -0.9%

Net exports -476 -330 1.1% Exports 1670 1419 -15.0% -1.9% Imports 2146 1749 -18.5% -3.0%

Government 2506 2568 2.5% 0.5% National defense 645 695 7.7% 0.4% Nondefense 315 328 3.9% 0.1% State and local 1546 1548 0.1% 0.0%

Total Inventories 1835.5 1750.2 -4.6%

2009-II -3.8%

1958-I -3.0%

1982-III -2.7%

1954-II -2.5%

1975-I -2.3%

1980-III -1.6%

1961-I -1.0%

1991-I -1.0%

1970-IV -0.2%

Worst 4 Quarter Contractions

Consumers

• 30% of all imports30% of all imports• Categories:Categories:

– Vehicles– Toys – Furniture– Apparel– Footwear

92-IV 08-I 09-IV

Savings 6.5% 1.0% 4.2%

Spending 79.2% 83.1% 84.0%

Taxes 11.6% 12.6% 8.8%

Spending as Percent of Income

Forecast

Year of Return to 2006 Peak`07-09 Decline: -20%Subsequent Growth Rate:

3% 20205% 2016

10% 2014

• Prolonged global economic downturn will Prolonged global economic downturn will exert significant downward pressure on trade exert significant downward pressure on trade for some timefor some time

• The death of the American consumer will The death of the American consumer will affect U.S. imports going forwardaffect U.S. imports going forward– Growth will be slower and from a lower level

• Ports that were pushing their capacity in 2006 Ports that were pushing their capacity in 2006 have 3 to 6 years of breathing roomhave 3 to 6 years of breathing room

• Reduced competitiveness v.v. EC portsReduced competitiveness v.v. EC ports• Increased competition on WCIncreased competition on WC

– Canada– Mexico– Panama Canal

• Loss of jobsLoss of jobs• Loss of local revenuesLoss of local revenues• Reduction in emissionsReduction in emissions• Lower infrastructure obligationsLower infrastructure obligations• Better service for local shipmentsBetter service for local shipments

• Ports and EmploymentPorts and Employment– Goods movement seen as wave of employment

future– Logistics jobs taking over for manufacturers as

source of good jobs for unskilled workers

• Conventional wisdomConventional wisdom– Port activity creates jobs with high wages and

upward mobility

• Wages:Wages:– MEAN wages for logistics: $47,000– MEDIAN wages for logistics: $32,000– Bottom quartile: $18,000

• Upward mobility is limitedUpward mobility is limited– Job prospects 18-1 in favor of low skilled

• QuantityQuantity– Not high in LA region relative to other cities

• Trade will not stage a dramatic comebackTrade will not stage a dramatic comeback• Imports through California will be particularly Imports through California will be particularly

slowslow• There are threats to the continued dominance There are threats to the continued dominance

of the SoCal ports, but is that a “problem”?of the SoCal ports, but is that a “problem”?• California will always have important global California will always have important global

gatewaysgateways

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