by: Don Lee

Marking the first decline since the early 1990s, California's exports of manufactured goods dropped significantly in the second quarter of this year, as Asia deteriorated badly and shipments to Latin America and Europe slowed from their previously exceptional growth rates, according to data released Thursday. The value of the state's merchandise exports totaled $25.8 billion in the April-June quarter, down 5.8% from the same period in 1997. That decline, which affected a broad spectrum of industries from electronics makers to exporters of waste paper, contrasted with a 6% increase in exports in the first quarter as well as for all of last year.

California's exports account for about 10% of the state's gross product and were a principal factor in the state's recovery from recession, but its heavy exposure to the Pacific Rim--which receives about half of California's exports--was expected to hit the state hard. "We knew the bad news was coming sooner or later," said Ted Gibson, head economist at the California Department of Finance. Gibson was hesitant to predict what might happen in the coming months, given the volatility of exports and in the global markets in recent months. But he added: "We've got two or three quarters of not very pretty trade numbers ahead of us. Asia is going to continue to be a nasty bit of news."

The news from Japan--California's top export market--was particularly grim in the second quarter. California exports to Japan plunged by 18%, to $3.7 billion, after declining by 12% in the first quarter and 7.5% for all of 1997. Also significant was the 26% drop in exports to Taiwan, which until the second quarter had held up very nicely amid turmoil all around it. But Tom Chung, president of Tri-Net Technology Inc., a computer products maker in Walnut who has an office in Taipei, Taiwan, said it was inevitable that Taiwan would feel the competitive effects of Asia's currency devaluation and swooning economies.

"My exports to Taiwan are almost down to zero," he said glumly, adding that it's the same for many of the other Chinese American high-tech exporters in the San Gabriel Valley. "This year, I don't think there will be any breakthrough." Exports to South Korea and Singapore also fell dramatically. Mainland China provided the only bit of good news in Asia, as California's exports there rose by 30.9%, making that country now the state's 11th-largest export market.

The exports decline in the second quarter broke a string of consecutive increases that spanned the recession years and into early this year. Despite Asia's problems, unusually strong growth in Mexico and Europe had until now largely offset export losses in the Pacific Rim. But in the latest quarter, California's exports to Mexico increased by 15.1%, still very strong but only half the growth rate of the first quarter and all of last year. And there are some worries that the turbulence in Latin America's financial markets may take further steam out of California's shipments to Mexico.

Western Europe also was a disappointment. California's exports to that region grew by 8.6% in the second quarter, down from 21% in the first quarter. G.U. Krueger, an economist at the California Assn. of Realtors who tracks the exports data, said California exports may have further trouble in Europe because of Russia's problems. Jay Winter, executive secretary of the Foreign Trade Assn. in Los Angeles said,
"I don't think anybody is optimistic for the balance of this year."