California Is America's Engine. Tariffs Risk Stalling It

California powers the nation's economy—from Silicon Valley's innovation to the Central Valley's agriculture and the bustling ports of Los Angeles and Long Beach. But President Donald Trump's new program of tariffs threatens to put the brakes on the state's economic growth.

The White House last week imposed a 10 percent baseline tariff on all imports, with higher rates on countries running trade surpluses—34 percent on China, 20 percent on the EU, 25 percent on South Korea, 24 percent on Japan and 32 percent on Taiwan. Mexico and Canada remain exempt from the new tariffs but still face a previous 25 percent levy.

Trump's announcement immediately sent the markets into turmoil on Thursday, with Wall Street recording its worst day since 2020, when COVID-19 was in full swing. By market close on Monday, the S&P 500 slipped 0.2 percent, while the Dow Jones Industrial Average dropped 349 points, or 0.9 percent. However, U.S. stocks crept back up on Tuesday.

Trump has defended his tariffs plan, telling reporters, "Sometimes you have to take medicine to fix something." He has also argued that the new tariffs will prevent other countries from continuing to exploit the U.S. economy.

But economists remain unconvinced that Trump's words will ring true. CNBC host and analyst Jim Cramer warned of a potential repeat of "Black Monday" from October 19, 1987, when the Dow plummeted 22.6 percent in a single day.

Fears of inflation and recession are also growing. Former Federal Reserve Governor Frederic Mishkin warned: "If Trump puts in these kind of tariffs and we go into a trade war, the likelihood of a recession is going to be very high." He added that the tariffs would effectively be "a huge tax increase," and could lead to stagflation—"slow economic growth, coupled with high unemployment and accelerating inflation."

Goldman Sachs last month raised its forecast for a 2025 recession to 35 percent, up from 20 percent, marking its highest estimate since the regional banking crisis two years ago.

But nowhere have fears of an economic crisis been more pronounced than in California. The Golden State boasts the largest state economy in the United States, with a gross state product (GSP) of about $4.103 trillion in 2024, according to the U.S. Bureau of Economic Analysis (BEA). It is also the largest importer and second-largest exporter among states, with more than $675 billion in two-way trade, and has the fifth-largest economy in the world.

"Trump's chaotic trade war and economic policies are destabilizing markets and bringing uncertainty to not just consumers but businesses across every sector," Democratic strategist Alejandro Verdin told Newsweek. "California is especially impacted as a central contributor to the global economy that engages in trade across critical industries."

University of Southern California professor Jonathan Aronson warned that large states with major economies, including California and Texas, will likely see reduced imports and therefore higher prices because of the tariffs.

"In 2024, California was the largest importer of goods—$509 billion, close to 30 percent from China," he told Newsweek. "Texas was second with $384 billion of imports. The tariffs will likely cut down imports and raise prices in both states."

Following Trump's tariff announcement, California Governor Gavin Newsom moved quickly to shield the state's economy from the potential fallout of the White House's economic policies, announcing that he has directed his administration to "look at new opportunities to expand trade" with countries announcing retaliatory tariffs against the U.S., urging them to exclude California-made products from those taxes.

In response, White House spokesperson Kush Desai told Fox News: "Gavin Newsom should focus on out-of-control homelessness, crime, regulations and unaffordability in California instead of trying his hand at international dealmaking."

While California can't be directly targeted in international trade retaliation—since it's not a sovereign nation—foreign governments may still avoid penalizing the state's key exports like wine or walnuts. Instead, they may focus on products from pro-Trump states, such as soybeans or pork, UC Davis agricultural economist Daniel Sumner told Newsweek.

Still, California industries aren't in the clear. According to Fox News, the Newsom administration is concerned that retaliatory tariffs could hit California hard, with major impact on agriculture, manufacturing and trade.

Officials are especially concerned about the almond sector, a $4.7 billion export industry supporting 110,000 jobs and contributing $9.2 billion to the state GDP. Retaliatory tariffs from China, India and the EU could cost the industry up to $875 million, according to a UC Davis study.

Other sectors could also feel the ripple effects. Food prices may rise—90 percent of avocados consumed in the U.S. come from Mexico, and tariffs could limit supply. Meanwhile, tariffs on Canadian canola could raise costs for California dairy farmers. The wine industry could also face price hikes because of European wine tariffs and rising costs of imported materials like corks, glass and capsules.

California's manufacturing sector, centered in Los Angeles and employing more than 313,000 people, is also vulnerable. The state exported nearly $160 billion in manufactured goods last year, led by electronics, machinery and chemicals—all of which could be hit by retaliatory tariffs. State officials worry that tariffs on cross-border goods could increase prices for finished products.

Fewer exports and imports could mean job losses across ports and supply chains, particularly in California's Inland Empire, economist Jock O'Connell warned in an interview with the Los Angeles Times.

"There will be fewer employment opportunities at the ports and throughout the supply chain that goes from the ports well into the Inland Empire, where huge numbers of containers are processed each day," O'Connell said.

A new report from the state Employment Development Department (EDD) showed that California lost an estimated 7,500 jobs in February, with losses in eight of California's 11 industry sectors. The biggest decline occurred in Professional & Business Services, with most of it coming from Computer Systems Design and Related Services as well as Legal Services and Management, Scientific, and Technical Consulting.

However, an EDD spokesperson noted that the figures were seasonally unadjusted and that the statewide unemployment rate was unchanged in February at 5.4 percent.

So far in 2025, California has lost 28,900 jobs, The Mercury News reported. Michael Bernick, an employment attorney with law firm Duane Morris and a former director of the state EDD, told the outlet that "uncertainty" over Trump's tariffs has been the "main driver" of the job losses.

UCLA urban planning professor Chris Tilly, noted that California warehouses have seen large job losses, partly because of overcapacity but as a result of Trump's tariffs.

"California warehousing employment has not trended upward since 2022, and has fluctuated since that time, in my view because it was flirting with overcapacity," Tilly told Newsweek. "Though the job losses look large, they are well within the range of recent fluctuations.

"That said, Trump's tariff threats and actions certainly are not helping and there is almost surely a 'Trump effect' in the current dip. California has a disproportionately large warehouse sector above all because it is the main destination for manufactured goods from China, so it's not hard to connect the dots."

Verdin also blamed Trump's tariffs for job losses in the state.

"Due to Trump's ad-hoc policies, we're seeing layoffs and an economic downturn across the board," he said. "It has everything to do with the administration swinging blindly at each turn. He thinks throwing paint at the wall is a winning strategy, when an economy requires deliberate actions that keep the welfare of the country in mind."

But Trump's tariffs may be just the beginning of California's economic challenges this year.

Steve Levy, director of the Center for Continuing Study of the California Economy, cautioned that more trouble is ahead.

"The bad news is likely just beginning with tariffs, restrictions on immigration and rising inflation on the way," Levy told The Mercury News.