Business
Shift in China-U.S. trade is hurting California, helping Texas
As if it weren’t worrisome enough for California that more highly skilled, highly paid workers have been leaving for Texas, evidence shows that the Lone Star State has begun to siphon trade dollars and uncounted jobs away from the Southland’s ports and the distribution hubs in the Inland Empire.
And the apparent cause of the new wrinkle in the Texas-California rivalry is not some new policies or programs adopted in Texas to make it a greater magnet for economic activity that was previously in California. Instead, it’s a consequence of the U.S.-China trade war that began when Donald Trump occupied the White House and has continued with President Biden’s efforts to reduce American dependence on China, especially for high-tech products that involve national security and other issues.
To get around the U.S. tariffs and trade restrictions, Chinese companies have sharply stepped up investments into Mexico and been moving products into the United States by truck instead of shipping by sea through the massive port and distribution systems in Southern California.
The ports of Los Angeles and Long Beach are the busiest in the nation and handle about 40% of all ocean cargo from Asia. But last year the number of 20-foot-equivalent containers from China entering the San Pedro ports complex fell a combined 12.5% from 2022, to the lowest level in at least a decade, according to data from S&P Global Market Intelligence.
“If we’re doing less business, it means fewer jobs, quite simply,” said Gene Seroka, executive director of the Port of Los Angeles. He said that every four containers translate into one job. “Economically, where all of us spend our money, if we don’t have this cargo coming through, it will be less — and there will be choices to be made.”
China’s share of all containers entering the Port of L.A. still remains dominant, at 53% last year, although that’s down from 57% in 2022. Seroka sees that percentage slipping to the mid-40s in the coming years.
The Southland’s cargo volume, overall, has picked up significantly in recent months, thanks to the end of labor contract talks and diversions to the West Coast due to military conflict and drought disrupting the Suez and Panama canals, respectively.
But longer term, Seroka said a dwindling of Chinese inbound containers has to be made up elsewhere. In addition to some 15,000 longshoremen, the two ports support hundreds of thousands of jobs in the region — in trucking, warehousing, trade finances and countless small businesses.
California’s stringent environmental regulations and high business costs add to the pressure.
To be sure, increased Mexican imports also benefit Southern California, which historically has gotten a large volume of overland trade, particularly electronic products coming up the San Diego border. But the biggest entry point for Mexican goods is Laredo, Texas, just north of the big manufacturing center in Monterrey, Mexico, and then El Paso, close to Juarez.
“Since more and more goods are coming from Mexico, Texas is geographically and conveniently located,” said Sung Won Sohn, an economics professor at Loyola Marymount University.
Tom Fullerton, a border business economist at the University of Texas in El Paso, said a lot of things made in Mexico are intermediate components, many of which go back and forth across the border as many as a dozen times. Some 90% is transported by trucks. No wonder employment for truck drivers in Texas has been growing nonstop, while California’s has come to a screeching halt, according to the U.S. Bureau of Labor Statistics.
“Increased Chinese investment simply creates more business opportunities for firms in Texas,” Fullerton said.
At the moment, trade economies in both Texas and California face some head winds, including a slowing U.S. economy as a result of anti-inflation efforts, plus cutbacks by retailers and other buyers that overstocked merchandise even as American consumers have been shifting their spending from stuff to services, such as travel and entertainment.
“Now that we filled the house with everything, everything we could wear and use for years, they’re saying, ‘Let’s go to the movies, the ballgame,’” said Jock O’Connell, a California trade specialist at Beacon Economics. “U.S. demand for imported goods from anywhere is slacking.”
Last year U.S. imports of all merchandise from China, by ship and air, fell by a whopping 20% from 2022, to $427 billion. The Commerce Department reported Thursday that Chinese imports in January were up slightly from December, but down 6% from January 2023.
Meantime, U.S. imports from Mexico continued to rise in January and compared with a year earlier, extending the lead over China. Mexican imports jumped after the worst of the pandemic passed and reached $476 billion last year. It was the first time in more than two decades that Americans bought more merchandise from Mexico than China.
Overall, the U.S. trade deficit of all goods and services fell last year by almost 19%, the largest drop since 2009, as Americans bought less foreign oil and fewer China-made phones, toys and household goods. In January, the trade deficit increased, to $89 billion, as American exports were lower than December and year-earlier figures.
Efforts to diversify production away from China have been going on for years, in part as a hedge against political risks and rising labor and business costs in China. But the move to Mexico and some other nations gained speed after then-President Trump in 2018 slapped large tariffs on a wide array of Chinese imports.
President Biden hasn’t lifted them, and in some ways further tightened the trade screws on China. The pandemic added to the so-called reshoring or near-shoring momentum as multinationals, stung by a breakdown in transport and supply chains, sought to be closer to their markets.
Harry Moser, founder of the Reshoring Initiative to bring manufacturing back to the U.S., said the changes in trade volume by country don’t tell the full story. Although he called the drop in the American trade deficit with China last year a good thing, Moser questioned whether the U.S. is really less dependent on China.
What’s happening, he argued, is that there’s considerable rerouting of trade from China through Mexico. And he fears it could get worse, pointing to the Chinese firm BYD’s plans to build an electric vehicle factory in Mexico for export to the U.S. Even Tesla, which makes its cars in Shanghai as well as Texas, is apparently urging some of its Chinese suppliers to locate in Mexico, he said.
“It’s not time to celebrate the China news,” Moser said of the reported drop in Chinese imports to the U.S.
Apparently there’s no cause to celebrate in the Southland either.
Chinese automotive parts companies have been among the most aggressive in stepping up investments in Mexico. Thirty-three car parts suppliers of Chinese origin are now registered in Mexico, and 18 exported $1.1 billion worth of products to the U.S. last year, up 15% from 2022, said Michelle Sagrero, communications manager at INA, the auto parts industry association in Mexico. She said more Chinese investments are in the works, though she said it was too early to disclose how many companies.
Overall, Chinese foreign direct investment, while stalling in the U.S., has kept growing in Mexico and topped $2.5 billion in 2022, a fivefold increase from 2000-04, according to Red ALC-China, a nonpartisan network of academics in Mexico and other countries. The tally for Chinese investments in 2023 hasn’t been published yet, but “it’ll be substantially higher,” said Enrique Dussel Peters, coordinator for the Center for Chinese-Mexican Studies at UNAM, a university in Mexico City.
The U.S.-China trade war has undoubtedly played a big role, he said. In his study for a United Nations economic group, Dussel Peters found that in 2021, companies exporting goods from China to the U.S. paid 18.8% of the value of their shipment in tariffs and transportation costs. The comparable costs for Mexico-originated exports to the U.S. — 1.05%.
“The difference is substantial, to put it politely,” he said.
Dussel Peters said he expects more Chinese and other foreign companies to invest and set up shop in Mexico. Mexico has free trade pacts not only with the U.S. but also a few dozen other nations, and it has its own sizable domestic market too. But he noted that there is one potential hitch. Thus far, Washington hasn’t come down hard in pressuring Mexico to follow the U.S. on China trade and investments.
“There is always the threat that the U.S. becomes more serious about complying with U.S. regulations and restrictions,” Dussel Peters said. “You can’t continue with a trade war and profound conflict and have a major partner of the U.S. with a sign saying to the Chinese, ‘Welcome to Mexico.’”
Scott Bessent, the billionaire hedge fund manager whom President-elect Donald J. Trump picked to be his Treasury secretary, plans to divest from dozens of funds, trusts and investments in preparation to become the nation’s top economic policymaker.
Those plans were released on Saturday along with the publication of an ethics agreement and financial disclosures that Mr. Bessent submitted ahead of his Senate confirmation hearing next Thursday.
The documents show the extent of the wealth of Mr. Bessent, whose assets and investments appear to be worth in excess of $700 million. Mr. Bessent was formerly the top investor for the billionaire liberal philanthropist George Soros and has been a major Republican donor and adviser to Mr. Trump.
If confirmed as Treasury secretary, Mr. Bessent, 62, will steer Mr. Trump’s economic agenda of cutting taxes, rolling back regulations and imposing tariffs as he seeks to renegotiate trade deals. He will also play a central role in the Trump administration’s expected embrace of cryptocurrencies such as Bitcoin.
Although Mr. Trump won the election by appealing to working-class voters who have been dogged by high prices, he has turned to wealthy Wall Street investors such as Mr. Bessent and Howard Lutnick, a billionaire banker whom he tapped to be commerce secretary, to lead his economic team. Linda McMahon, another billionaire, has been picked as education secretary, and Elon Musk, the world’s richest man, is leading an unofficial agency known as the Department of Government Efficiency.
In a letter to the Treasury Department’s ethics office, Mr. Bessent outlined the steps he would take to “avoid any actual or apparent conflict of interest in the event that I am confirmed for the position of secretary of the Department of Treasury.”
Mr. Bessent said he would shutter Key Square Capital Management, the investment firm that he founded, and resign from his Bessent-Freeman Family Foundation and from Rockefeller University, where he has been chairman of the investment committee.
The financial disclosure form, which provides ranges for the value of his assets, reveals that Mr. Bessent owns as much as $25 million of farmland in North Dakota, which earns an income from soybean and corn production. He also owns a property in the Bahamas that is worth as much as $25 million. Last November, Mr. Bessent put his historic pink mansion in Charleston, S.C., on the market for $22.5 million.
Mr. Bessent is selling several investments that could pose potential conflicts of interest including a Bitcoin exchange-traded fund; an account that trades the renminbi, China’s currency; and his stake in All Seasons, a conservative publisher. He also has a margin loan, or line of credit, with Goldman Sachs of more than $50 million.
As an investor, Mr. Bessent has long wagered on the rising strength of the dollar and has betted against, or “shorted,” the renminbi, according to a person familiar with Mr. Bessent’s strategy who spoke on condition of anonymity to discuss his portfolio. Mr. Bessent gained notoriety in the 1990s by betting against the British pound and earning his firm, Soros Fund Management, $1 billion. He also made a high-profile bet against the Japanese yen.
Mr. Bessent, who will be overseeing the U.S. Treasury market, holds over $100 million in Treasury bills.
Cabinet officials are required to divest certain holdings and investments to avoid the potential for conflicts of interest. Although this can be an onerous process, it has some potential tax benefits.
The tax code contains a provision that allows securities to be sold and the capital gains tax on such sales deferred if the full proceeds are used to buy Treasury securities and certain money-market funds. The tax continues to be deferred until the securities or money-market funds are sold.
Even while adhering to the ethics guidelines, questions about conflicts of interest can still emerge.
Mr. Trump’s Treasury secretary during his first term, Steven Mnuchin, divested from his Hollywood film production company after joining the administration. However, as he was negotiating a trade deal in 2018 with China — an important market for the U.S. film industry — ethics watchdogs raised questions about whether Mr. Mnuchin had conflicts because he had sold his interest in the company to his wife.
Mr. Bessent was chosen for the Treasury after an internal tussle among Mr. Trump’s aides over the job. Mr. Lutnick, Mr. Trump’s transition team co-chair and the chief executive of Cantor Fitzgerald, made a late pitch to secure the Treasury secretary role for himself before Mr. Trump picked him to be Commerce secretary.
During that fight, which spilled into view, critics of Mr. Bessent circulated documents disparaging his performance as a hedge fund manager.
Mr. Bessent’s most recent hedge fund, Key Square Capital, launched to much fanfare in 2016, garnering $4.5 billion in investor money, including $2 billion from Mr. Soros, but manages much less now. A fund he ran in the early 2000s had a similarly unremarkable performance.
When devastating wildfires erupted across Los Angeles County this week, David Torgerson’s team of firefighters went to work.
The thousands of city, county and state firefighters dispatched to battle the blazes went wherever they were needed. The crews from Torgerson’s Wildfire Defense Systems, however, set out for particular addresses. Armed with hoses, fire-blocking gel and their own water supply, the Montana-based outfit contracts with insurance companies to defend the homes of customers who buy policies that include their services.
It’s a win-win if the private firefighters succeed in saving a home, said Torgerson, the company’s founder and executive chairman. The homeowner keeps their home and the insurance company doesn’t have to make a hefty payout to rebuild.
“It makes good sense,” he said. “It’s always better if the homes and businesses don’t burn.”
Torgerson’s operation, which has been contracting with insurance companies since 2008 and employs hundreds of firefighters, engineers and other staff, highlights a lesser-known component of fighting wildfires in the U.S. Along with the more than 7,500 publicly funded firefighters and emergency personnel dispatched to the current conflagrations, which have burned more than 30,000 acres and destroyed more than 9,000 structures, a smaller force of for-hire professionals is on the fire lines for insurance companies, wealthy individual property owners or government agencies in need of additional hands.
Their presence isn’t without controversy. Private firefighters hired by homeowners directly have drawn criticism for heightening class divides during disasters. This week, a Pacific Palisades homeowner received backlash for putting a call out on X, the social media site formerly named Twitter, for help finding private firefighters who could save his home.
“Does anyone have access to private firefighters to protect our home in Pacific Palisades? Need to act fast here. All neighbors houses burning,” he wrote in the since-deleted post. “Will pay any amount.”
“The epitome of nerve and tone deaf!” someone replied.
In 2018, Kim Kardashian and Kanye West credited private firefighters for saving their $60-million home in the Santa Monica mountains during a wildfire. But those who serve wealthy clients make up only a small fraction of nonpublic firefighters, according to Torgerson.
“Contract firefighters who are hired by the government are the vast majority,” he said. The federal government has been hiring private firefighters since the 1980s to support its own forces. According to the National Wildfire Suppression Assn., there are about 250 private sector fire response companies under federal contract, adding about 10,000 firefighters to U.S. efforts.
Some private firefighting companies, including Wildfire Defense Systems, are known as Qualified Insurance Resources and are paid by insurance companies to protect the homes of their customers. Wildfire Defense Systems refers to its on-the-ground forces as private sector wildfire personnel.
Wildfire Defense Systems only works with the insurance industry, but other privately held firefighting companies contract with industrial clients such as petrochemical facilities and utility providers. Wildfire Defense Systems declined to disclose company revenue or what it charges for its services.
Allied Disaster Defense, a company that has sent personnel to the fires in Los Angeles, offers services to both property owners and insurance companies. Its website says its services will “enhance the insurability of properties” and “contribute to reduced claims.”
The website also has a page dedicated to services for private clients, which include emergency response and assistance with insurance claims for “high net-worth and celebrity” customers. The company does not list prices for its services and has nondisclosure agreements with its private clients.
Several other private firefighting companies are based in California, including Mt. Adams Wildfire, which contracts with government agencies, and UrbnTek, which serves Los Angeles, Orange County and San Diego among other areas. Along with spraying fire retardant on trees and brush to stop an advancing fire, the company offers “a double layer of protection by wrapping a structure with our fire blanket system.”
Torgerson, a civil engineer with 34 years in emergency services, said he has been struck by the speed of the current wildfires. While typically it takes two to 10 minutes for a fire to sweep through a home, he said, the Palisades fire is traveling at higher speeds.
“It’s moving so fast, it’ll likely take one to two minutes for these fires to pass over the properties,” he said.
He said his company responded to all 62 of the wildfires that threatened structures in California in 2024 and didn’t lose a property.
This year just got started, but it is already shaping up nicely for U.S. airlines.
After several setbacks, the industry ended 2024 in a fairly strong position because of healthy demand for tickets and the ability of several airlines to control costs and raise fares, experts said. Barring any big problems, airlines — especially the largest ones — should enjoy a great year, analysts said.
“I think it’s going to be pretty blue skies,” said Tom Fitzgerald, an airline industry analyst for the investment bank TD Cowen.
In recent weeks, many major airlines upgraded forecasts for the all-important last three months of the year. And on Friday, Delta Air Lines said it collected more than $15.5 billion in revenue in the fourth quarter of 2024, a record.
“As we move into 2025, we expect strong demand for travel to continue,” Delta’s chief executive, Ed Bastian, said in a statement. That put the airline on track to “deliver the best financial year in Delta’s 100-year history,” he said.
The airline also beat analysts’ profit estimates and said it expected earnings per share, a measure of profitability, to rise more than 10 percent this year.
Delta’s upbeat report offers a preview of what are expected to be similarly rosy updates from other carriers that will report earnings in the next few weeks. That should come as welcome news to an industry that has been stifled by various challenges even as demand for travel has rocketed back after the pandemic.
“For the last five years, it’s felt like every bird in the sky was a black swan,” said Ravi Shanker, an analyst focused on airlines at Morgan Stanley. “But it appears that this industry does have its ducks in a row.”
That is, of course, if everything goes according to plan, which it rarely does. Geopolitics, terrorist attacks, air safety problems and, perhaps most important, an economic downturn could tank demand for travel. Rising costs, particularly for jet fuel, could erode profits. Or the industry could face problems like a supply chain disruption that limits availability of new planes or makes it harder to repair older ones.
Early last year, a panel blew off a Boeing 737 Max during an Alaska Airlines flight, resurfacing concerns about the safety of the manufacturer’s planes, which are used on most flights operated by U.S. airlines, according to Cirium, an aviation data firm.
The incident forced Boeing to slow production and delay deliveries of jets. That disrupted the plans of some airlines that had hoped to carry more passengers. And there was little airlines could do to adjust because the world’s largest jet manufacturer, Airbus, didn’t have the capacity to pick up the slack — both it and Boeing have long order backlogs. In addition, some Airbus planes were afflicted by an engine problem that has forced carriers to pull the jets out of service for inspections.
There was other tumult, too. Spirit Airlines filed for bankruptcy. A brief technology outage wreaked havoc on many airlines, disrupting travel and resulting in thousands of canceled flights in the heart of the busy summer season. And during the summer, smaller airlines flooded popular domestic routes with seats, squeezing profits during what is normally the most lucrative time of year.
But the industry’s financial position started improving when airlines reduced the number of flights and seats. While that was bad for travelers, it lifted fares and profits for airlines.
“You’re in a demand-over-supply imbalance, which gives the industry pricing power,” said Andrew Didora, an analyst at the Bank of America.
At the same time, airlines have been trying to improve their businesses. American Airlines overhauled a sales strategy that had frustrated corporate customers, helping it win back some travelers. Southwest Airlines made changes aimed at lowering costs and increasing profits after a push by the hedge fund Elliott Management. And JetBlue Airways unveiled a strategy with similar aims, after a less contentious battle with the investor Carl C. Icahn.
Those improvements and industry trends, along with the stabilization of fuel, labor and other costs, have created the conditions for what could be a banner 2025. “All of this is the best setup we’ve had in decades,” Mr. Shanker said.
That won’t materialize right away, though. Travel demand tends to be subdued in the winter. But business trips pick up somewhat, driven by events like this week’s Consumer Electronics Show in Las Vegas.
The positive outlook for 2025 is probably strongest for the largest U.S. airlines — Delta, United and American. All three are well positioned to take advantage of buoyant trends, including steadily rebounding business travel and customers who are eager to spend more on better seats and international flights.
But some smaller airlines may do well, too. JetBlue, Alaska Airlines and others have been adding more premium seats, which should help lift profits.
While he is optimistic overall, Mr. Shanker acknowledged that the industry was vulnerable to a host of potential problems.
“I mean, this time last year you were talking about doors falling off planes,” he said. “So who knows what might happen.”
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