KPCC's business analyst Mark Lacter talks about how Los Angeles Mayor Antonio Villaraigosa's trip to Asia might help his city's economy; he also talks about how Europe's sovereign debt crisis is affecting the Southland's economy.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, Mayor Villaraigosa is on a 10-day Asian trade mission. Will it do any good?
Mark Lacter: Actually, it might Steve, especially since he’s going to China, Japan, and South Korea – those are three of L.A.’s most important trading partners. You know, these trade missions sometimes get a bad rap – partly because they tend to cost a lot. This one is running close to $300,000, although it doesn’t involve taxpayer money (it will be paid from revenues generated by the Los Angeles World Airports and the Port of Los Angeles). Still, it’s a sensitive topic for Villaraigosa, who over the years has taken official trips that were of more questionable value – you may recall him going to a climate summit in Copenhagen a couple of years ago to trumpet a not-so-spectacular pilot program for street lights. This time out, his office sent out a press release running several pages long that outlined business the city has received thanks to earlier trade missions.
Julian: Don’t you think critics will point out that most of the deals that get done would probably have happened anyway without spending all that money on the meet and greets?
Lacter: To some extent, yes – L.A. remains a major center for international companies wanting to do business in the U.S. and there are plenty of L.A. companies wanting to do business overseas. On this trip, the mayor will announce that a Korean-shipping company will expand its operations at the Port of Los Angeles. This is after President Obama signed a free trade agreement with South Korea – and the deal obviously would have happened whether Villaraigosa took his trip or not.
Julian: What’s really the crux of trips like this?
Lacter: What they mostly do is provide a chance for the city to show its flag – kind of a preemptive strike against all the other U.S. cities that are looking for business overseas. There was a time when L.A. did very little marketing because nobody thought it was needed. This was L.A., after all. But over the years lots of business has been lost to other areas that were only too happy to arrange attractive incentive packages. So city officials now realize they have to work a little harder, and we are starting to see results.
Julian: Let’s go even farther west… how big a deal is Europe’s sovereign debt crisis on our local economy?
Lacter: This is a tough one to sort out Steve. If the roof does cave in – that is, if one or more nations go into default or if there’s a serious recession caused by all the austerity measures they’re talking about – there’s bound to be an impact around the world, including in Southern California. The global economy is simply too interconnected for these types of disasters to remain isolated. We certainly saw that earlier this year with the Japanese earthquake and its aftermath. Much of the auto and electronics industries were out of commission for months, and that had a significant impact on the availability and distribution of Japanese-made parts – and that contributed to a pretty significant slowdown in U.S. economic growth.
Julian: Is Europe that big a player when it comes to trade coming through the Los Angeles Customs District?
Lacter: No, it isn’t. China is by far the biggest trading partner (most of that coming from imports). Germany is the biggest player from Europe, but it’s all the way down in 11th position -- less than 4 percent of what China generates. So it’s not a big number. That said, an economic meltdown in Europe would undoubtedly cause a number of nasty things to happen to the state and local economies, starting with a big drop in the U.S. financial markets. Also, the dollar is bound to rise sharply, which means that not as many Europeans would be visiting places like L.A., and U.S. goods would be a lot more expensive overseas (also foreign investment coming into the U.S. would slow, which could be a big deal for the technology industry).
Julian: So the question isn’t so much whether there would be an economic contagion, but the extent of that contagion.
Lacter: Right – could it, in other words, result in the U.S. going into a recession and how badly would the local economy get hit? Truth is, no one knows, and that’s a big reason why, despite some positive signals about the economy, there’s such uncertainty about next year.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.