California's Economy Has a Trump Problem

Newsweek

5 hours ago

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The Californian economy is expected to undergo "a mild contraction," with unemployment expected to hit 6.1 percent this year according to a new report by UCLA's Anderson Forecast, which makes projections about both the state and the national economy.
The report attributes the contraction in part to the impact of the White House's policies on tariffs and its crackdown on illegal immigration, which it projects will fuel inflation and drag on economic growth for the remainder of 2025.
Why It Matters
President Donald Trump was inaugurated for the second time in January with the promise of delivering a new "golden age" for the United States.
However, if the Anderson Forecast is correct, and his flagship policies on tariffs and immigration are causing economic growth to drag, the president will come under pressure to explain how this pledge will be met.
The Anderson Forecast, produced by UCLA's Anderson School of Management, is one of the most closely watched set of predictions for the economy of California.
What To Know
The forecast projects that the Californian economy "will grow slower than the U.S.'s in 2025, with several quarters of negative job growth" and says it is "already experiencing a mild contraction, with job losses and stagnation in key sectors."
This, and the projected slowdown in the national economy resulting in "near zero" real GDP growth in the second half of 2025, are attributed to "aggressive trade policies, fiscal instability and labor market disruptions" fueled by the federal government. The forecast projects the national economy will make only a "modest recovery" through 2027.
According to the Anderson Forecast, the Californian economy will grow by just 0.1 percent in 2025, followed by 0.8 percent in 2026 and 2.5 percent in 2027. Non-agricultural payroll jobs will decline slightly in the state this year, while inflation will hit 6.1 percent in 2025 before falling back to 4.4 percent in 2027.
Stock image of the California state flag hanging from a downtown office building in San Francisco. President Donald Trump, inset.
Stock image of the California state flag hanging from a downtown office building in San Francisco. President Donald Trump, inset.
Smith Collection/Gado/BRENDAN SMIALOWSKI/AFP/GETTY
The report says that the sectors "that have historically driven California's superior growth," such as technology, entertainment and durable goods manufacturing, "are either stagnant or contracting." It reports that the Californian housing sector is also under pressure as a result of "rising input costs owing to tariffs" and "deportations reducing the construction workforce."
On the national level, the forecast says tariffs "are increasing costs across manufacturing and trade-related sectors, contributing to inflation and weakening the competitiveness of U.S. goods."
On April 2, which he dubbed "Liberation Day," Trump introduced sweeping new tariffs targeting most of America's trade partners, including levies of 20 percent on the European Union and 34 percent on China, which came on top of another 20 percent he had already imposed.
Following a negative market reaction, most of these tariffs were paused and replaced with a flat 10-percent rate, but some higher duties remain in place, including a 25-percent rate for automobile-related imports.
Trump has also imposed a major crackdown targeting illegal immigration, with Immigration and Customs Enforcement stepping up raids across the country and speeding up deportation proceedings.
What People Are Saying
Speaking to Newsweek, Professor Jerry Nickelsburg, director of UCLA's Anderson Forecast, said: "In the first three months of 2025, California lost 50,000 payroll jobs. The growth sectors over the past year have stopped growing and tech, manufacturing and entertainment have yet to take off. Income growth will be positive, but it is likely that employment growth will be slightly negative."
Professor Chris Tilly, who teaches at the UCLA Luskin School of Public Affairs, told Newsweek that "the impact of President Trump's tariff policies and immigration crackdown will be severe nationwide, and especially severe in California."
He said: "In California, one in three jobs is filled by an immigrant, and a large minority of California's immigrant workforce is undocumented. Critical California industries such as agriculture, construction, restaurants and hotels, and manufacturing are dependent on immigrant workforces, including undocumented workers.
"Undocumented families in California, most of whom are long-term residents at this point, also make up an important part of the consumer base. Already, many undocumented migrants are not showing up for work, and are shopping less. Even legal immigrants and Latino citizens are going out less, and therefore spending less, out of fear of being stopped and questioned. If this continues, the effects on the California economy—as well as the economy of many other states—will be devastating."
Tilly added: "The probable impact of Trump's tariffs is less certain, in part because there is so much uncertainty about what his tariff policy will end up being. But already there are major depressing effects on the ports and warehousing that are important contributors to California's economy. To the extent that other countries retaliate with tariffs on key California exports such as agricultural goods and high-tech products, that will further batter the economy."
Professor Robert Blecker, an economist who used to teach at the American University in Washington, D.C., told Newsweek: "Trump's massive deportations of immigrant workers are likely to cause labor shortages and drive up labor costs in key sectors such as agriculture, construction, and services, while his on-again, off-again tariffs have depressed consumer and business confidence and threaten to drive up costs for households and firms alike."
What Happens Next
It remains to be seen if the Anderson Forecast's projections for the U.S. and Californian economies for the remainder of this year are correct. If they are, Trump is likely to come under heightened pressure over his economic and social policies, including tariffs and mass deportations.