California trade shifts to new partners amid federal policy changes

Port of Los Angeles

Despite sweeping federal policy shifts and geopolitical tensions, California's trade volume has demonstrated surprising resilience through mid-2026. 

Rather than shrinking under the weight of foreign tariffs and international conflict, the state's commerce has reorganized, shifting trade routes toward new global partners, according to a report from the Public Policy Institute of California.

Through July 2026, merchandise trade in California expanded by 7.3% to reach $417 billion, propelled by a 2.8% rise in exports and a 9% increase in imports, marking a sharp acceleration from the modest 2.5% growth recorded during the same timeframe in 2025 and virtually flat results for that full year.

"U.S. trade policy has been in flux since early 2025, with the rollout of tariffs; ongoing negotiations with China, Canada, and other countries; and the Supreme Court striking down tariffs imposed under the International Emergency Economic Powers Act," wrote Daniel Payares-Montoya, PPIC research associate and author of the report. 

"These patterns continued into 2026 and coincide with a trade decline between California and key partners, the rising importance of trade with Vietnam and Taiwan, and modest growth in total," Payares-Montoya said.

While Mexico remains California's largest trading partner, trade with China has fallen as importers reroute goods through third countries to bypass trade barriers. Consequently, Vietnam became the state's leading import source in early 2026.

Concurrently, imports from Taiwan have surged — reaching roughly $49 billion in 2025 — driven by the tech sector's demand for semiconductors and hardware to build AI infrastructure, according to the report.

In contrast, trade with traditional partners, like Canada, has weakened. Canadian counter-tariffs of up to 50% on 648 U.S. product categories have heavily strained California's transportation equipment and electronics exporters, whose export share to Canada fell to 8.3%.

Geopolitical conflict in the Middle East has also altered energy imports. Direct trade exposure to countries reliant on the Strait of Hormuz remains small at 1.7% of trade, but crude oil imports from the region dropped from $4 billion in 2025 to $1.8 billion through July 2026.

Although California has successfully diversified its oil suppliers, experts warn that prolonged disruptions could trigger price shocks across the state, where foreign sources supply 61% of refined crude oil.

Port of Los Angeles Executive Director Gene Seroka described the volatility in trade experienced amid the Trump tariffs as a whipsaw effect as the southern California port saw a jump in traffic last summer as retailers attempted to get ahead of tariffs.