California: Anchoring the Pacific Rim

How about a positive story about California for a change?

Whatever California’s other problems – and they are myriad – the Golden State’s position as a critical player on the Pacific Rim is assured. California, the largest exporting state to Asia, is a linchpin of the vast trading area encompassed by some 41 countries that touch the Pacific Ocean.

The International Monetary Fund says California has the world’s seventh-largest economy, with a $1.5 trillion GDP, and that’s easy to believe. The state exports to 220 foreign countries, and imports from nearly as many, and it’s international-linked trade accounts for about a fourth of the state’s economy, according to an analysis by the California Chamber of Commerce.

In 2006, it’s exports to China alone totaled more than $10 billion, including nearly $4 billion in computers and electronic products alone. But China is just fourth on California’s export ladder, behind  $13.9 billion to Japan, more than $14 billion to Canada and some $20 billion to Mexico, which purchases 15 percent of all California exports. California exports about $7 billion worth of goods to South Korea. The imports are huge, too—some $20 billion worth from Canada alone.

The numbers are daunting, but the bottom line is that California is an attractive market place, not only for import-exports, but for foreign companies who want to locate here. The lure is California itself, which has an almost mythical reputation to some.

“That’s how we ended up with a French company producing at the old McClellan Air Force base, a couple of Japanese companies producing saki and soy sauce and Siemens in Rancho Cordova,” said Brooks Ohlson, the director of the Center for International Trade Development.

According to federal figures, U.S. affiliates of majority-owned foreign companies employ more than 5 million U.S. workers, or 4.4 percent of private-industry employment. An additional 4.6 million U.S. jobs indirectly depend on foreign investment in the United States. Between 2002 and 2006, nearly 2,900 new projects were announced or opened by foreign companies, yielding $82 billion in investment and about 170,000 new jobs.

California exports amounted to more than $127 billion, according to 2006 figures, an increase from the 2005 total of nearly $117 billion. California maintained its perennial position as a top exporting state. California’s top trading partners are Mexico, Canada, Japan, China and South Korea. California trade and exports translate into high-paying jobs for more than 1 million Californians.
Ohlson, whose job entails building trade relationships with other countries, notes that China is especially partial to California.
“California holds a special place in the actual hearts and souls of the Chinese community by virtue of our size, our entrepreneurial spirit, our own Chinese business community, our agricultural industry and high-tech. It’s a destination for tourism, for the entertainment industry,” he said.

According to the Chamber of Commerce, trade between the United States and China has risen rapidly over the last several decades. U.S. exports to China are on a steady increase from previous years. Hong Kong GDP per capita is comparable to other developed countries. The United States has substantial economic ties with Hong Kong, and a report by the U.S. State Department indicates that there are some 1,100 U.S. firms and about 54,000 U.S. residents in Hong Kong.

“During the past three years we probably hosted hundreds of delegations specifically from China,” added Ohlson, who returned last week from a business meeting in China.

Just what constitutes the Pacific Rim? Business and trade experts use the term to describe the major Asian economic centers – Japan, which has the world’s third largest economy; China, South Korea, Singapore, Hong Kong, Taiwan the Philippines, Vietnam, even Australia and New Zealand; some even include India. Technically, some 41 nations comprise the Pacific Rim, including Tuvalu, Brunei, Vanuatu and Timor-Leste. Some of the Pacific Rim nations have formed a trade group called the Asian-Pacific Economic Cooperation organization, or APEC, which includes Mexico, Malaysia, New Zealand, Papua, New Guinea; Brunei and Thailand.
But when trade developers talk about the Pacific Rim, they often are talking about the major economic players, including what are known as the “Four Tigers”—Hong Kong, Singapore, South Korea and Taiwan—so-called because of their aggressive economies.
The members of another trade group, the Association of Southeastern Nations, “have signed an agreement to become an economic union by 2020. The agreement sets deadlines for lowering travel restrictions and tariffs in the region of 500 million people. Jointly, their $1 trillion economy is slightly larger than India’s,” the Chamber reported.

In it’s analysis of international competitive markets, the Chamber said “ASEAN includes Thailand, the Philippines, Indonesia, Cambodia, Malaysia, Singapore, Laos, Vietnam, Brunei and Myanmar. In November 2004, ASEAN and China signed an agreement to eliminate tariffs on all merchandise trade.”

The 2004 deal is part of a five-year process to create a free trade area between China and the 10 ASEAN nations. They have begun to implement two major agreements leading to the creation of the free trade area by 2010. The agreement will cut tariffs for nearly 7,000 products. Once fully implemented, the agreement will create a free trade area of nearly 2 billion people and a combined gross domestic product of $2 trillion. It would be one  of the largest trading markets, eliminating nearly all tariffs on goods, moving to liberalizing trade in services and opening cross-border investment.