The SBA limited access to its loans to U.S. citizens and nationals only starting in March, and expanded that policy to SBA-backed loans beginning in April. On top of that, any business that’s even partly owned by a permanent legal resident with a green card is no longer eligible for the loans.

California — which has the most small businesses and the largest immigrant population in the nation — could be most affected. SBA loans have been important to immigrant entrepreneurs because they typically are low-interest and available to those without an established credit history. The agency has also backed loans by private funders, providing a government guarantee for people banks may deem riskier. Now, all those loans are off the table for owners and would-be owners of restaurants, bake shops, law practices, medical clinics, taxi medallions, nail salons and more who hold green cards.

Small business owners are responsible for 99% of net new jobs in the state, according to the California Office of the Small Business Advocate. Immigrant entrepreneurs make up 40% of the state’s business community and generated $28.4 billion in income in 2023, according to GO-Biz, the governor’s office of business and economic development.

Small Business Majority, a national business advocacy group, wrote to the SBA in mid-March, urging the federal agency to reconsider the changes. The letter, signed by dozens of state and national groups and chambers of commerce, called the new policies “a misguided approach that ignores critical economic data underscoring the job creating power of the immigrant community.”

The SBA has a limited lending capacity, said Maggie Clemmons, a spokesperson for the agency. “The agency’s rule change will help ensure more American citizens have access to funding previously granted to noncitizens,” she said in an email.

The SBA approved 3,358 loans for small businesses owned partly by a lawful permanent resident in fiscal year 2025, largely during the Biden administration, Clemmons said. That represented 4% of the 85,000 loans approved by the agency. In California, the changes could affect about 220,000 small business owners who hold green cards, said Carolina Martinez, chief executive of CAMEO Network, a national association of organizations that support small businesses.

“The most important thing for us is to really understand that this SBA decision… is really bad for the American economy,” Martinez said.

Pursuing the American Dream

Cristina Foanene, a Romanian immigrant who arrived in the United States 20 years ago, was a green-card holder when she obtained an SBA loan in 2018 that allowed her and her husband to buy a building and expand their glass company, MCS Glass, in Fresno. They now have 30 employees.

“The loan gave us an opportunity to create more jobs, to have an even greater impact in our community,” Foanene said. Their goal is to manufacture more products and create more positions, she added.

She said she doesn’t know where the business would be today without the SBA loans they received over the years. They just signed their third loan last month, Foanene said, their first as American citizens.

She called herself loyal to this country and said she’s sad that others like her may not have the same opportunities to pursue the American Dream by securing SBA loans while “respecting the laws.”

“It literally breaks my heart,” Foanene said. “There are so many good people with good intentions. I feel it’s unfair.”

Other entrepreneurs or independent contractors also lose a possible safety net that SBA loans once provided.

“During the pandemic, these loans were crucial to people’s survival,” said Dung Nguyen, program and organizing director for California Healthy Nail Salon Collaborative, an organization that advocates for Vietnamese immigrants, many of whom work in the nail-salon industry. The group signed the Small Business Majority’s letter to the SBA.

Nguyen said the nail-salon workers and owners who took out those loans during the pandemic are still paying them back.

‘A new kind of status’

Kenia Zamarripa, spokesperson for the San Diego Regional Chamber of Commerce, which also signed the letter to the SBA, said this latest policy change is another example of how immigrants are more vulnerable as federal funds for other programs have been taken away. Her group and others are pushing for immigration reform that includes a standardized path to citizenship, she said.

“This is a community that’s doing things the right way, looking for a legal path,” she said. “It’s like you’re punishing them for doing the right thing.”

The SBA changes push green-card holders to “informality,” Zamarripa said. “What’s next? What other resources will be taken away? How else will immigrants continue to be targeted?”

Others echo that concern.

“This dialog is really challenging our concept of what undocumented means,” said Gabriela Alemán, a spokesperson for Mission Asset Fund, a San Francisco organization that supports and lends to small business owners. “These are community members that are now being pushed into a new kind of status.”

Mission Asset Fund’s lending circles — modeled after the Mexican community-based lending practice called tandas — can provide up to $2,500 in loans to small business owners. The group just got its California lenders’ license and will eventually be able to provide larger loans, Alemán said.

But it will be tough for groups like it to fill the gap left by the SBA’s new policies for permanent legal residents who may want to start or grow their businesses.

“There are not any other options at this scale (that the SBA provides),” said Brian Kennedy Jr., entrepreneur ecosystem director at AmPac Business Capital, a Los Angeles-area community development financial institution and SBA partner. “We’re talking about $35,000 up to $30 million.”

What’s next

Many small business owners already use — and may increasingly rely on — community development financial institutions and other lenders whose mission is to help people with limited options, credit histories and savings. They could also turn to the state for help. State-funded options include a small business loan guarantee program through its IBank, and programs through the treasurer’s office that reduces risks to lenders by pledging state funds as collateral, or contributing to loan-loss reserves.

Microenterprise Collaborative of Inland Southern California works with lenders, technical assistance providers and community partners to help small business owners in Inland Southern California.

Pamela Deans, the group’s executive director, said the SBA’s policy change will alter how the organization refers entrepreneurs to sources of capital. Rather than pointing them to “a relatively straightforward” SBA process, she said the group will have to inform them of a more fragmented set of options and warn them about predatory lending.

“Many of these would‑be owners will have a much harder time piecing together enough safe, affordable capital to lease a space, buy equipment or cover early working capital — so the taquería, the child care business, the trucking startup may never open in the first place,” Deans said.

Bianca Blomquist, California director for Small Business Majority, also is concerned about small business owners turning to unscrupulous lenders. She said her group found out recently that an owner of a child care business in downtown L.A. took out a $10,000 loan at what she thought was 13% interest. It was actually closer to 250%.

Other advocates are hoping philanthropy and impact investors will step up and make more capital available to small lenders.

“Women, entrepreneurs, immigrants and communities of color always have had to think outside the typical paths,” said Leticia Landa, executive director of La Cocina, a small business incubator in San Francisco. “I do hope, especially in California, that we’re going to come up with something.”

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California’s artificial intelligence boom isn’t sustainable and could fade as soon as this year, budget experts are warning. Meanwhile, departures driven by the wealth tax proposal could cut deeply into state revenues.

For Gavin Newsom, the timing could hardly be worse.

“If there’s an AI crash, that would be very difficult to navigate through,” said Darry Sragow, a longtime Democratic strategist in the state. “And it’s hard to imagine this ballot measure having a positive impact on much of anything.”

Newsom, a likely 2028 presidential contender, has for years counted on tech industry innovation and taxes from California’s wealthiest residents to finance his biggest progressive projects, projecting California as an economic powerhouse. But now in his final year as governor, he is suddenly confronting the twin threats of a billionaire exodus and a potential slowdown in AI growth that could upend both California’s reputation as a tech behemoth and the state’s fragile revenue stream.

Together, they represent a major political liability for the high-profile Democrat, who is laboring to position California as a model worth replicating on a national stage.

“Investment in AI and data centers and all of the build out we’ve seen cannot indefinitely continue,” warned Matt Mahan, the Democratic San Jose mayor who is considering his own run for governor. “And I don’t currently believe that Sacramento is properly positioned for an inevitable slowdown in the economy.”

And though Mahan, leader of Silicon Valley’s most populous city, is a frequent critic of the governor, he is far from the only Democrat who sees liability for Newsom.

“It does put the governor in a tough situation, because he is trying to do this last year where he can go around touting accomplishments,” said Andrew Acosta, a Democratic political consultant in Sacramento. “If the next governor comes in and says, ‘We’ve got to clean up the mess that the last governor made,’ that’s not going to be helpful for him.”

Newsom this month pitched a brighter version of California’s financial picture than independent experts at the Legislative Analyst’s Office, the state’s nonpartisan budget watchdog. His office projected a relatively small, $2.9 billion deficit buoyed by AI industry revenues, compared to the $18 billion gap the LAO anticipated in its own estimates last November.

“Every year, it’s the same kabuki,” Newsom told reporters last week. “I don’t think there’s been a lot of evidence since they put out their first forecast that we’re wrong.”

State Finance Department spokesperson H.D. Palmer said the governor’s plan identifies an AI downturn as a budget risk but doesn’t “assume a recession” will happen this year, as the LAO did.

“If we could project with relative certainty the specific time point when a market downturn could occur, we should be playing the Sportsbook in Vegas,” Palmer said.

But even Newsom acknowledged last week that “something could happen, a ‘black swan’ event … Don’t think for a second I’m static, looking at the budget, assuming anything. We game all this stuff out.”

Newsom, who has railed against the wealth tax, told POLITICO last week that he’s been working quietly to reach a compromise before the initiative qualifies for California’s November ballot, including meeting with a top labor union official spearheading the effort.

Still, the possibility that it might go forward threatens to accelerate the exodus of uber-wealthy magnates and the business activity they fuel. Last month, the Legislative Analyst’s Office and the Finance Department projected the wealth tax could reduce state revenue by hundreds of millions of dollars a year in the “likely” scenario that some billionaires leave California and take their income with them.

That would dramatically eclipse tens of billions of dollars that the agency said the state would “probably” collect from the tax, which would target five percent of billionaire assets. Meanwhile, tax loopholes and the volatile stock market make the exact amount hard to predict.

“If a lot of billionaires left, all those things combined could certainly then have a really negative impact on the state’s budget,” said Chris Hoene, executive director of the nonpartisan California Budget and Policy Center.

Or as Michael Genest, who was top financial adviser to Republican former Gov. Arnold Schwarzenegger in the lead-up to the Great Recession, put it: “Of the two big pictures — one, stock market crash, two, billionaires leaving — either one by itself would be catastrophic for the California state budget.”

He said, “Our budget is heavily, heavily reliant on the upper income people in the state and on the stock market.”

California’s dependence on the fortunes of a few top earners has led to several massive budget gyrations since the turn of the century, with downturns following the so-called “dot-com bubble” in the early 2000s and the Great Recession later that decade.

Facing deficit budgets in the last three years, Newsom has proposed tough cuts, including a measure last year to curb access to Medi-Cal for some undocumented immigrants. But he’s ramped up spending overall, from $208 billion in his first fiscal year as governor to a proposed $349 billion starting in July. To offset recent funding shortfalls, California’s relied on its booming AI industry.

But budget analysts point to high rates of investor borrowing and sluggish job growth as evidence that the sector is a “bubble” that’s at risk of popping. Even AI titans like Mark Zuckerberg and Sam Altman have suggested their industry’s rapid growth isn’t sustainable.

“California and Silicon Valley in particular, was built on bubbles,” said Larry Stone, a Democratic donor and longtime Silicon Valley investor who served 30 years as a county assessor in the region. “What’s happening now with AI is, in fact, kind of classic.”

On top of that, Newsom is contending with a Trump administration that has scrambled world markets with tariff threats while targeting blue states, especially California, with federal funding cuts to health care, food aid, and other programs. Those cuts have blown holes in the state’s budget even as AI revenues pour in.

“The stars are aligned for a nightmare scenario,” said Steve Maviglio, a longtime Democratic political consultant in Sacramento and frequent critic of the governor.

Last week, the LAO slammed Newsom’s budget for painting what it argued was an overly optimistic financial picture that disregarded the possibility of a stock market downturn tied to AI. Agency staff wrote that the risks were “severe enough that not incorporating them into this year’s budget, as the Governor proposes, would put the state on precarious footing.”

California’s progressive tax system relies heavily on personal income and capital gains taxes from high-income earners, many of whom work in tech. The state has raked in cash as firms like Nvidia, Meta and Google offer top AI talent lucrative pay packages that often include stock options.

It also means the state is more exposed if AI stocks tumble.

If billionaires leave and the AI boom recedes, said Senate Budget Committee Vice Chair Roger Niello, a Republican, “that would be a real double whammy. There’s no doubt about that — and a pretty serious one.”

AI industry leaders are bullish, saying the sector will furnish California’s coffers with billions of dollars in future tax revenue, a major boon for the state economy. ChatGPT-maker OpenAI estimated in its own economic report from last July that the company and its employees will contribute nearly $200 million in state taxes this year — and will contribute around $6 billion in total economic impact in 2030.

Yet those figures assume an AI bubble does not “pop” between now and the end of the decade. They also rely on continued high-tech chip research powering AI systems and a breakneck pace for data center construction, even as Democrats propose AI regulations to safeguard against spiking utility bills.

If those trends don’t hold and AI companies fail to show signs of turning a profit this year, experts say the firms risk souring their standing with investors, which could discourage new investment in the sector.

Still, Hoene said “it’s also important to recognize that we don’t know a downturn is coming.”

Yet the potential for a downturn is causing even some lawmakers in Newsom’s party to pour cold water on Newsom’s more optimistic outlook. Assemblymember Nick Schultz, a Democrat from Burbank, said during a legislative hearing this week that while he wants to “share the optimism of the administration,” he agrees with the LAO’s more conservative numbers over “concerns about the health of the stock market and how that might impact revenues.”

“We’re banking our budget on an economy fueled by AI, for all intents and purposes,” added state Sen. Laura Richardson, a Los Angeles Democrat.

Newsom, for his part, has taken counter-measures to guard against a budget crisis. He’s shielded the AI industry from state Democrats’ most aggressive proposals to regulate the emerging technology, while state Attorney General Rob Bonta last year approved OpenAI’s high-stakes corporate restructuring after getting concessions from the company, which had begun to hint it might move out of state along with its billions if it didn’t get its way.

The state has built up its reserves in the years since the Great Recession, allowing it to weather shocks such as the economic effects of the Covid-19 pandemic and inflation better than prior decades. Newsom’s latest budget proposal contains $23 billion in reserves, and the state can borrow money from other funds as long as it is repaid.

Even some Republicans admit the state’s in a better spot under Newsom.

“We have more in reserves. Our cash position is much healthier,” Niello said, comparing the state’s situation to 2008. But he added: “If we’d have put all that surplus away in the reserves, we wouldn’t be anywhere near the problem we have right now.”

There’s a chance that the AI math works out in Newsom’s favor. If industry giants keep booming and California rakes in more tax revenue than expected, it would put California in an even stronger position a year from now. And as proponents behind the wealth tax struggle to win over other labor unions, a mass exodus of billionaires could peter out.

If both issues go his way and state revenues keep climbing, Newsom could leave office on a high note, able to boast that he kept the world’s fourth-largest economy humming while ushering in a wave of progressive policies.

“Governors have to tell the story of their state. That’s how they get nominated to be the candidate.” said Doug Herman, a Democratic strategist in Los Angeles who was a lead mail strategist for Barack Obama’s 2008 and 2012 campaigns. “You have to leave the place cleaned up and in good order.”

Recently, Newsom has also closed budget gaps primarily through deferrals and borrowing from reserves, helping to avoid tax hikes while still spending more to create programs that funded housing construction and established universal pre-K for four-year-olds, among other priorities.

Those moves, however, were made with the hope that California’s economic outlook would improve in future years.

“The gimmicks, one-time stuff, borrowing the use of your reserves — those things all come back to bite you,” Genest said.

Chase DiFeliciantonio contributed to this report.

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Governor Gavin Newsom touted new data from the International Monetary Fund (IMF) and the US Bureau of Economic Analysis showing California’s growth.

The data shows California’s gross domestic product (GDP) hit $4.10 trillion (£3.08 trillion) in 2024, surpassing Japan, which was marked at $4.01 trillion. The state now only trails Germany, China and the US as a whole.

“California isn’t just keeping pace with the world – we’re setting the pace,” Newsom said.

The new figures come as Newsom has spoken out against President Donald Trump’s tariffs and voiced concern about the future of the state’s economy.

California has the largest share of manufacturing and agricultural production in the US. It is also home to leading technological innovation, the centre of the world’s entertainment industry and the country’s two largest seaports.

Newsom, a prominent Democrat and possible presidential candidate in 2028, filed a lawsuit challenging Trump’s authority to impose the levies, which have caused disruption to global markets and trade.

Trump has enacted 10% levies on almost all countries importing to the US, after announcing a 90-day pause on higher tariffs.

Another 25% tariff was imposed on Mexico and Canada. The levies on China, however, have led to an all-out trade war with the world’s second largest economy.

Trump imposed import taxes of up to 145% on Chinese goods coming into the US and China hit back with a 125% tax on American products.

His administration said last week that when the new tariffs were added on to existing ones, the levies on some Chinese goods could reach 245%.

Newsom noted his worries about the future of the state’s economy.

“While we celebrate this success, we recognise that our progress is threatened by the reckless tariff policies of the current federal administration,” he said. “California’s economy powers the nation, and it must be protected.”

Trump has argued his trade war is only levelling the playing field after years of the US being taken advantage of.

The tariffs are an effort to encourage factories and jobs to return to the US. It is one major pillar of his economic agenda, as is a cut in interest rates, aimed at reducing the cost of borrowing for Americans.

The new data shows California’s GDP behind the US at $29.18 trillion, China at $18.74 trillion and Germany at $4.65 trillion. It also shows California was the fastest growing among those countries.

Japan’s economy is under pressure because of its decreasing and ageing population, which means its workforce is shrinking and social care costs are ballooning.

This week, the IMF cut its economic growth forecast for Japan and projected that the central bank would raise interest rates more slowly than previously expected because of the impact of higher tariffs.

“The effect of tariffs announced on April 2 and associated uncertainty offset the expected strengthening of private consumption with above-inflation wage growth boosting household disposable income,” its World Economic Outlook report said.

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Newsom announced the state’s new economic ranking Wednesday after recently released data from the International Monetary Fund and the U.S. Bureau of Economic Analysis indicated that California’s nominal gross domestic product now exceeds Japan’s.

According to the data, California’s nominal GDP reached $4.1 trillion, surpassing Japan’s $4.02 trillion. That places the Golden State behind only the United States at $29.18 trillion, China at $18.74 trillion, and Germany at $4.65 trillion.

“California isn’t just keeping pace with the world — we’re setting the pace,” Newsom said in a statement. “Our economy is thriving because we invest in people, prioritize sustainability, and believe in the power of innovation.”

Of the top-four global economies, California’s is also the fastest growing, according to data and Newsom’s office. Its nominal GDP grew at a rate of 6% in 2024, outpacing the U.S.’s overall 5.3% rate, China’s 2.6% rate and Germany’s 2.9% rate.

Newsom attributed California’s showing to a growing population and record tourism spending coupled with a high concentration of venture capital and new business ventures. He also touted the strength of the state’s agricultural, high-tech and manufacturing centers.

While celebrating the milestone, Newsom also took a swing at President Trump’s tariff policies.

“While we celebrate this success, we recognize that our progress is threatened by the reckless tariff policies of the current federal administration,” he said in a statement. “California’s economy powers the nation, and it must be protected.”

Last week Newsom announced a lawsuit challenging Trump’s executive authority to enact international tariffs without the support of Congress, calling the president’s economic policies a “wrecking ball” to America’s global reputation.

The legal action argues that the International Emergency Economic Powers Act that Trump cited to impose tariffs does not grant the president the ability to unilaterally adopt tariffs on goods imported to the U.S.

“No state is poised to lose more than the state of California,” Newsom when announcing the lawsuit. “That’s why we’re asserting ourselves on behalf of 40 million Americans.”

The last time California advanced in world economic ratings was 2018, when its nominal GDP surpassed the United Kingdom’s to move into fifth place. India’s economy, which is currently $3.90 trillion, is predicted to overtake California’s in 2026, according to current data trends.

Times staff writer Taryn Luna contributed to this report.

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The lawsuit, which Newsom and Attorney General Rob Bonta filed in federal court in San Francisco, argues that Trump does not have the constitutional authority to unilaterally enact tariffs. Trump cited the United States’ large trade deficit to declare a national emergency earlier this month and impose sweeping import taxes on the rest of the world.

Visiting an almond farm in Turlock, which stands to lose export business to retaliatory tariffs, Newsom expressed anger over the “toxic uncertainty” of the president’s trade policy. He said the policies are harming California more than any other state and called the tariffs a betrayal of the voters who supported Trump because of his promise to bring down the cost of living. 

“This is recklessness at another level. The geopolitical impacts are outsized. The trade impacts are outsized,” Newsom said. “No rationale, no plan, no conscience to what it’s doing to real people.”

In a matter of days in early April, Trump invoked the International Emergency Economic Powers Act of 1977 to establish a universal 10% tariff on all countries importing goods to the United States, with even higher reciprocal tariffs on some nations, then abruptly reversed course hours after they took effect, pausing most of the reciprocal tariffs while ratcheting up the import tax on China to 145%.

The chaos tanked the stock market, a huge risk for California’s forthcoming budget, which depends disproportionately on income tax revenue from capital gains earned by the wealthiest taxpayers. The state is also particularly vulnerable to other economic pain from the tariffs, because China is California’s largest trading partner, propping up manufacturing, agriculture, tourism and major ports in Los Angeles, Long Beach and Oakland.

Other significant potential impacts for California include driving up the cost of construction materials just as Los Angeles begins rebuilding from a series of devastating fires that flattened several neighborhoods in January.

California’s economic outlook is declining

Newsom said today that, anticipating higher inflation and higher unemployment from the tariffs, he has downgraded California’s economic outlook in a revised budget proposal that he plans to unveil next month. Though did not speak to Trump about the lawsuit, he said he gave the White House a heads up.

In a statement, the White House slammed Newsom for undermining Trump’s efforts to rescue American industry.

“Instead of focusing on California’s rampant crime, homelessness, and unaffordability, Gavin Newsom is spending his time trying to block President Trump’s historic efforts to finally address the national emergency of our country’s persistent goods trade deficits,” spokesperson Kush Desai said.

In their lawsuit, the fifteenth that California has filed against the Trump administration since January, Newsom and Bonta asked a judge to immediately pause Trump’s tariffs.

The state contends that the International Emergency Economic Powers Act specifies many remedies a president can take in response to a foreign economic threat, but tariffs are not among them. Without this specific authorization from Congress, the lawsuit argues, Trump’s actions are “unlawful” and “unprecedented.”

Joining Newsom in Turlock, Bonta said Trump was “attempting to override Congress and steamroll the separation of powers” and that his “rogue and erratic tariffs” must be stopped to prevent further damage to California’s economy.

“Trump has had to resort to creating bogus national emergencies that defy reason,” Bonta said. “Bottom line: Trump doesn’t have the singular power to radically upend the country’s economic landscape. That’s not how democracy works.”

Alan Sykes, who teaches international trade law at Stanford Law School, told CalMatters that California’s case has merits, but it may be difficult to win.

He said the international powers act is ambiguous about tariffs; they are not explicitly mentioned in the law, though there is language allowing for the regulation of imports and exports. But Congress has also passed other laws over the years giving away their constitutional power to set tariffs. Sykes noted that Trump could shift to citing those statutes instead if his tariffs are struck down.

“Congress has badly over-delegated authority to the president in this regard,” Sykes said. “I’m not terribly optimistic that the courts are going to rein that in.”

The lawsuit continues Newsom’s shift back toward a more aggressively confrontational stance against the Trump administration. After the Los Angeles wildfires, the governor sought to reset his relationship with Trump as he lobbied for federal disaster aid.

But even though Congress has yet to approve any further assistance for Los Angeles, Newsom has begun more vocally opposing the president’s economic policies in recent weeks. 

In the wake of Trump’s tariffs announcement earlier this month, Newsom said California would pursue its own “strategic partnerships” on international trade. The state this week launched a new tourism campaign in Canada, which has been the second largest source of international visitors to California but has already seen a steep decline this year.

Newsom was unusually harsh when speaking about Trump’s tariffs in Turlock, calling them the “poster child” for stupidity and an example of “crony capitalism” because of the president’s willingness to exempt products from favored industries such as electronics manufacturing.

“This is the personification of corruption,” Newsom said. “How in the hell are we sitting by and letting this happen?”

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The majority of the lumber that the store sells comes from Canada and nearly all of its steel products are made in China, general manager Rieff Anawalt said. Those countries, along with Mexico, have been targeted in sweeping tariffs imposed by President Trump during his second term, sparking a global trade war that intensified this week.

“These tariffs are 100% going to impact us,” Anawalt said. Wholesale reps for the family-run hardware company, which has five locations around Los Angeles County, have warned him to expect prices to go up by April 1 — costs that he said he’ll have to pass on to customers.

“We’re going to see major increases: 15% to 25% across the board in this industry,” he said. “It’ll make COVID prices seem cheap.”

Across California, businesses of all kinds — farmers, automakers, home builders, tech companies and apparel retailers — are reeling from weeks of on-again, off-again tariff chaos as Trump has announced a slew of levies against the country’s top three trading partners, implementing some while modifying, delaying or reversing others.

“It’s a day-by-day soap opera, and just like a soap opera, you get relief, then it heats up again,” said Jonathan D. Aronson, a professor of international communication and international relations at USC.

As a result, business owners “don’t know what’s going to happen,” he said. “They can’t plan. They don’t know how much to produce. They don’t know who their business partners are going to be.”

This month has been particularly tumultuous. On March 4, Trump’s 25% tariffs on imports from Canada and Mexico kicked in, with a limit of 10% on Canadian energy; he also doubled the tariff on all Chinese imports to 20%. All three countries vowed to strike back with their own measures.

The next day, Trump granted a one-month exemption for U.S. automakers on his new tariffs on imports from Canada and Mexico. The day after that, he said he was postponing many of the tariffs on Canadian and Mexican imports for a month.

On Monday, in a blow to farmers in California and across the U.S., China imposed retaliatory duties of up to 15% on American agricultural products including chicken, corn, beef, pork, wheat and soybeans. Then on Wednesday, Trump’s 25% tariffs on all steel and aluminum imports went into effect.

To counterbalance the effects of the tariffs on their bottom lines, businesses may have to overhaul their operations, said Jerry Nickelsburg, faculty director of the UCLA Anderson Forecast.

“The way in which firms react to that uncertainty is to not put all their eggs in one basket,” he said. “So they cut back on how much they would order, which means they’re going to produce less and they need fewer people — or if not fewer people, fewer hours for the people they have.”

The latest volley came Thursday morning, when Trump threatened to place a 200% tariff on wine and liquor from the European Union in response to the EU proposing a 50% tariff on American whiskey. About an hour later, he wrote in a follow-up post on Truth Social that the U.S. “doesn’t have Free Trade. We have ‘Stupid Trade.’”

“The Entire World is RIPPING US OFF!!!” he said.

Bolstering the economy was one of Trump’s core promises during the election, and tariffs are key to his strategy. He threatened to slap tariffs on Mexico, Canada and China on his first day back in office, explaining the decision as a way to crack down on illegal immigration and drugs.

But the escalating trade tensions have pummeled Wall Street for three weeks. On Thursday, the S&P 500 closed in correction territory, ending the day down 1.39%; the index is now 10.1% below its record close Feb. 19. The Dow Jones Industrial Average fell 537.36 points, or 1.3%, closing at 40,813.57.

The fallout for farmers

The prolonged back-and-forth has also unsettled companies, both those that import goods from abroad and those that sell their products to foreign clients. California’s economy could be especially hard hit because of its heavy reliance on trade with China and Mexico, and because of its position as a global agricultural powerhouse.

California farmers grow the largest share of the nation’s food — more than a third of the country’s vegetables and more than three-quarters of its fruits and nuts are grown here — and the state’s fertile ground is a major supplier of produce to countries around the world. Farmers also rely heavily on fertilizer from Canada, which could cost more as the tariffs take hold.

“Farmers in California are going to be hurt particularly badly because almonds, soybeans and things like that are huge exports of the United States,” Aronson said.

The state also accounts for about 85% of wines produced in the United States and is home to thousands of grape growers and wineries, many of them small and generations-old. The Wine Institute says the industry supports employment for more than 420,000 Californians and generates $73 billion in economic activity in the state. Canada is the largest market for California wine.

A flurry of activity at the ports

Some L.A.-area companies have been stockpiling inventory to get ahead of expected price hikes tied to the tariffs, said Stephen Cheung, chief executive of the Los Angeles County Economic Development Corp.

“A lot of them were hit pretty hard during the last trade war with China,” he said, “so they knew better than to wait and hope for the best.”

That has been reflected in shipping data from the ports in Long Beach and Los Angeles, which continue to record huge numbers thanks to several months of front-loading cargo ahead of Trump’s inauguration.

The Port of Long Beach moved 765,385 twenty-foot equivalent units, or TEUs, in February, a 13.4% increase from the previous year. January’s year-over-year growth was even larger: 952,733 TEUs — a unit of measurement based on the volume of a standard shipping container — were moved, representing a 41.4% increase.

After Trump launched a trade war with China during his first term, the Port of Long Beach lost about 20% of expected Chinese cargo in 2019, Chief Executive Mario Cordero said. That was supplemented by a 10% increase of imports from countries in Southeast Asia including Vietnam, Indonesia and Thailand. He expects the same thing to happen this time around.

In the coming months, Cordero said the local economy could see supply-chain disruptions, similar to what occurred during the pandemic, “if we continue on the path of aggressive and high-percentile tariffs.”

The Port of Los Angeles expects a 10% reduction in volume from last year amid Trump’s tariffs against China, Executive Director Gene Seroka said.

One of the largest seaports in the country, the L.A. port has seen sharp increases in cargo since last summer as businesses stocked up in anticipation of potential Trump tariffs. Just under 10.3 million TEUs, a near record, passed through the port last year.

Those numbers are likely to trend downward as tariffs take hold and the economy adjusts, Seroka said. “Fewer containers mean fewer jobs.”

Economists say it’s difficult for companies to quickly change suppliers, and some may be loath to upend their supply chains given the ever-changing nature of Trump’s trade policies.

Some are trying anyway.

Francesca Grace, an interior designer and home stager in Los Angeles, said tariffs have already affected the availability and price of items including fabrics, wood and other building materials, and smaller decor pieces.

Supply chain delays have extended her project timelines in some cases to three to six weeks from immediate availability, and she’s contending with “at least a 25% rise” in costs for materials from China. As a result, she’s now trying to source all of her products locally, up from 75%.

“While this shift aligns with our values, it will also cause our pricing to increase,” Grace said. “We are doing everything we can to avoid increasing our pricing too much. The last thing we want is for these changes to negatively impact our business or make our designs inaccessible.”

Other businesses say they have little choice when it comes to where they get their merchandise.

“Lumber prices are what they are. There’s no sourcing it somewhere else, so we’re going to have to deal with it as it comes,” said Anawalt, the general manager at the Malibu hardware store. “It’s so beyond my control, there’s nothing I can do. I was panicked at first, but now I’m just going to wait.”

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As a gubernatorial candidate in 2018, Gov. Gavin Newsom made a pledge to create 500,000 new apprenticeships in the decade after taking office, part of his broader strategy to boost the state’s job programs. 

He’s on track to reach that goal — with about 200,000 apprenticeships so far — according to a press release last month from the governor’s office. 

But a few weeks after that, he cited a new and much larger number. “On the trajectory we’re currently on — this is an actual number — and if you want to have us back into this number, I’m happy to provide that information later: 624,895 apprenticeships, 624,895 that we are currently on track to achieve well beyond the 500,000 by 2029,” he said.

What changed? Nothing, actually. 

The 200,000 figure represents the number of the state’s “registered apprenticeships.” To get registered, the state has certain requirements: most importantly, employers must treat their apprentices as employees, provide them with training, and pay them for the entirety of that training. Most registered apprenticeships are union-led and require years of prior education or work experience. Firefighters, for example, represent the largest apprenticeship program in the state, though the program is hyper selective.

Tara Gallegos, a spokesperson for the governor, said the 624,895 estimate includes many other jobs programs, none of which are actually apprenticeships, according to the state’s definition. Along with the roughly 200,000 “registered apprenticeships,” the governor’s office counted people who participated in various internships and training programs from the state’s labor and health agencies, such as one grant that taught farmworkers how to increase recycling and composting. Those farmworkers received little, if any, direct compensation as a result of their training. 

Many adults lack the work experience or education to qualify for an apprenticeship, said Stewart Knox, secretary of the California Labor and Workforce and Development Agency. He defended the governor’s recent estimates, saying that these programs, while not “registered apprenticeships,” still offer similar benefits and have fewer barriers to entry. “For me, it’s less about the goal, it’s more about the people we serve.”

Knox said the state is still on track to meet the campaign goal of 500,000 registered apprenticeships.

Billions in public money for job training 

After Newsom’s election in 2018, Brent Parton was part of a team of researchers at New America, a left-leaning think tank, that devised a strategy on how to add 500,000 new apprentices by 2029. In his 2020 report — and in the state’s action plan, which he helped create soon thereafter — the definition was clear: only state-approved or “registered” apprenticeships counted. 

“Are there unregistered apprenticeships? Sure. How many are there? We don’t know because they’re not registered,” he said. “That goal is about growing the registered apprenticeship system.”

In a state-registered apprenticeship, the apprentice is an employee both during and after their training. An official apprenticeship program also agrees to provide participants with a standardized credential at the end of their training, akin to a college degree, that’s transferable for similar kinds of jobs. Yet many of the programs that Newsom cited provide only pieces of that model, such as an internship that doesn’t guarantee a job. 

“The governor is doing the right thing by setting a vision for where he wants to get to. I think the state is going to have to make choices about what’s the universe of programs that it’s including in that,” Parton said. 

Nonetheless, he noted that California has made unprecedented investments in job training over the last few years — a total of $5.7 billion, according to Newsom’s remarks at a recent press conference. Parton said California is one of the few states that gives apprenticeship programs public funds to offset training costs.

“Regardless of what goal was set or where the governor is saying it is, I think what California’s done puts it on a really strong track to get there. Whether it’s 500,000 or 650,000 (apprenticeships), the conditions are really right.”

Trump, Newsom agree: more apprenticeships

Both Democrats and Republicans support expanding apprenticeships, but they disagree about how apprenticeship should be defined. A year before Newsom announced his goal in 2018, President Donald Trump issued an executive order, calling for more apprenticeships across the country as a way to “promote affordable education and rewarding jobs.”

Trump’s order gave employers more discretion to create their own apprenticeships, effectively wresting control away from certain unions and government agencies. Biden rescinded Trump’s order in 2021, while releasing a statement saying that he was expanding apprenticeships too.

While some of the programs that Newsom most recently mentioned aren’t registered apprenticeships, Knox said they were included in the tally because they offer a pathway to access those apprenticeships. He said the governor’s language doesn’t reflect any change in policy. 

One such program, run by the nonprofit Public Works Alliance, used about $11 million in philanthropic and county funds to train roughly 600 youth to become emergency medical technicians and paramedics. The organization received an additional $21 million from the state’s 2022-23 budget to expand the training across the state. 

Unlike an apprenticeship program, the students receive a stipend to attend class and because they’re not employees, graduates must find a job on their own. Alex Briscoe, a principal with the organization, said the employment rate for graduates is about 90% but that the wages for emergency medical technicians are low, about $18 to $24 an hour.

One of the most lucrative options for graduates is to become a firefighter apprentice, where the starting wage is often more than $40 an hour. Certified emergency medical technicians and paramedics get admission priority but that program is so competitive that even qualified candidates often wait years to secure a spot. 

“Many of these young people face barriers to employment,” Briscoe said. Some are current or former foster youth while others have been through the juvenile justice system. The long-term plan, he said, is to partner with the fire department and create new apprenticeships, giving more youth a pathway into a better job. 

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That was the first reaction of California Governor Gavin Newson upon learning of Donald Trump’s victory in the presidential elections on November 5.

Barely 48 hours had passed, and the Democrat not only issued that warning, but also took the first step to begin turning California into a state as “Trump-proof” as possible, to protect his policies before the Republican’s second term begins.

He called for an extraordinary session of the state Congress on December 2 , just over a month and a half before Trump takes office.

The goal: to discuss options and increase funding for potential litigation with the new administration on issues such as immigrant protection, reproductive and LGBTQ+ rights, or the fight against climate change.

The president-elect’s response was swift. Using his favorite nickname for the governor, Newscum — a play on his last name and “scum” in English — and making a nod to his own campaign slogan, he accused him of hindering “all the great things that can be done to make California great again.”

The California Outpost

Leaders in the southwestern state have for years portrayed it as a bulwark against right-wing extremism, and Newsom in particular has emerged nationally as one of Trump’s staunchest critics.

Some say he is actually paving his way to the Democratic nomination for president in 2028.

But if there is any entity that could counterbalance a Republican “power trifecta” — as Washington political jargon calls the scenario in which the president’s party also controls both houses of Congress — it would be California.

Not only because, with its nearly 39 million inhabitants, it is the most populated state in the country.

Also due to the size of its economy – it is estimated that if it were a nation, it would be the fifth largest economy in the world – it can shake up markets and thus has the ability to influence national politics.

It is also the state that has received the most attacks from Trump and his allies, and the one that probably, given his election promises, has the most to lose .

One need only look at the potential consequences for California of “the largest deportation in US history” that Trump promises.

“Promises made, promises kept”

On election night, as soon as he knew he had won, Trump announced that his second term would be guided by a simple motto: “Promises made, promises kept.”

And this week he confirmed—in capital letters, on his social network Truth Social—that he plans to declare a national emergency and mobilize troops to return undocumented immigrants en masse to their countries of origin.

California is home to more than 10 million foreign-born people, including about 1.8 million without legal status , according to 2022 data from the Pew Research Center.

It is also the second state, after Nevada, that is home to the most families with members with mixed immigration statuses – where, for example, the children are U.S. citizens by birth while one or both parents are undocumented.

There are more than six million such households in the U.S., about 5 percent of the total. And about 4.4 million children born in the country live with a relative without a green card, according to Pew.

Given this scenario, a mass deportation would not only be a human tragedy, experts warn, but also a blow to the economy. There are sectors that depend largely on undocumented labor, such as construction or agriculture.

In certain areas of California, a state known as the breadbasket of the United States because it produces one-third of the country’s vegetables and three-quarters of its fruit, undocumented workers can make up as much as 70% of the workforce .

“Sanctuary” for migrants

Thus, the state began to enshrine protections for undocumented immigrants years ago.

In 2017, then-Governor Jerry Brown signed the California Values ​​Act (SB 54) , which prohibits state and local law enforcement from collaborating with federal law enforcement on immigration matters.

And now, as Congress in Sacramento decides on another type of reinforcements at its session on December 2, several Californian cities have already begun to take their own measures.

The Los Angeles City Council on Tuesday endorsed an ordinance to turn the nation’s second-largest metropolis into a “sanctuary city .” It did so unanimously, but because the bill was amended during the council session, it requires a second vote.

Introduced in 2023, the ordinance is intended to serve as a firewall between federal immigration authorities and city agencies.

According to the law, municipal employees cannot “investigate, cite, arrest, detain, transfer or detain any person” for the purpose of enforcing immigration law , except in cases where serious crimes are being investigated.

They are also not allowed to collect information about someone’s citizenship or immigration status, unless it is necessary to provide a municipal service.

“It will prevent federal immigration agencies from accessing city facilities and tapping into city resources,” Councilwoman Nithya Raman told BBC News.

And in San Francisco, which sued the first Trump administration over its efforts to pressure city police to assist in detaining migrants, District Attorney David Chiu said he plans to again “use every legal tool to defend the city.”

Although Tom Homan , whom Trump chose as his “border czar ,” has already warned that such local laws and measures will not stop the administration from doing its job.

“Nothing will stop us from deporting criminal immigrants. We will get the job done with or without your help ,” said the man who, after being a police officer in New York, served as interim director of the Immigration and Customs Enforcement Service (ICE) in an interview on Fox News.

Along those lines, state Attorney General Rob Bonta acknowledged that while the California government can provide legal assistance and guarantee due process, state officials do not have direct power to protect those in the country illegally from deportation.

LGBTQ+ rights, climate action and more

Meanwhile, the Los Angeles School Board expanded the concept of sanctuary to include not only immigrant students but also the LGBTQ+ community in the nation’s second-largest school system.

There are fears that Trump and Republicans could try to roll back protections for transgender residents in the state.

Anticipating this, Governor Newson signed a law in July that prohibits school districts from requiring teachers to notify parents if students ask to be called by a name or pronoun other than the one assigned.

That has led the state into a series of battles with districts controlled by conservative caucuses, and experts say Republican leaders may want to intervene, something that could also happen on reproductive rights.

Although Trump softened his stance on abortion toward the end of the campaign, his conservative base is critical of California for amended its state constitution to enshrine the right after voters approved it.

They also oppose Newson’s efforts to ensure that reproductive health services are provided to women from states where abortion is banned or severely restricted.

Trump’s environmental agenda — confirmed by his choice of Christ Wright, a staunch defender of the fossil fuel industry and climate crisis denier, as energy secretary — also risks threatening California policies that for decades have helped set the pace for the rest of the world, such as the state’s vehicle emissions standards.

There is also the precedent of Trump’s first term, when he repealed more than 100 regulations aimed at cleaner air and water, controlling toxic chemicals and conserving wildlife.

The Republican also called global warming a “hoax” and withdrew the US from the Paris Agreement , which aims to prevent global temperatures from rising more than two degrees Celsius compared to pre-industrial levels.

Knowing this, Governor Newson traveled to Washington last week to meet with key officials in the Biden-Harris administration.

But he did so above all to pressure the Environmental Protection Agency (EPA) to give the green light to eight pending regulations on this matter, so that the still-president can sign them before January 19 and thus they come into force.

The path of demands and the power of federalism

Meanwhile, other Democratic leaders in California, including Attorney General Bonta, have been working for weeks on a strategy to protect the state from potential executive orders and other actions by a future Republican administration.

“If Trump doesn’t break the law, if he doesn’t violate the Constitution, if he doesn’t overstep his authority by illegal means, then there’s nothing we have to do,” Bonta told the Los Angeles Times .

“But if he does what he did last time, and if he does what Project 2025 suggests he will do, of course we will face each other in court , because he will be breaking the law,” he concluded.

During the Republican’s first term, then-California Attorney General Xavier Becerra sued the Trump administration more than 100 times .

As political polarization has increased in recent years, states have increasingly relied on this resource, and with increasing success.

According to a database created and maintained by Paul Nolette, a political scientist at Marquette University in Milwaukee, Republican attorneys general in several states have filed around 60 lawsuits against the Biden administration, winning 76% of them.

And during the first Trump administration, Democratic state attorneys general won 83 percent of the 160 lawsuits they brought against the federal government.

Erwin Chemerinsky, dean of the University of California, Berkeley, School of Law, expects the scenario to be partly repeated.

“The courts are more conservative now than they were when Trump took office in 2017 , and I think this administration will be more aggressive in pushing the conservative agenda, and will do so sooner,” he told The New York Times .

“Although states will also respond more aggressively from the start,” he added.

Eric Schickler, co-director of the Institute of Governmental Studies at the same Californian university and author of the book Partisan Nation , also speaks of aggressiveness and predicts that in the second Trump administration the legal route will involve new challenges.

“There are a lot of federal policies that Trump will push that could have a big impact on the state, and the tools to resist them may be limited, especially given Trump’s aggressive willingness to use executive power ,” Schickler told the Los Angeles Times .

“And then there’s the fact that the courts are generally controlled by conservatives who have a strong view of presidential power.”

Regardless, Governor Newson has already indicated that his state does not intend to fight this battle alone.

“California will look to work with the incoming President, but make no mistake: we will stand side by side with states across the nation to defend our Constitution and the rule of law ,” he wrote on social media after the election results were announced.

Several Democratic representatives from other states have already announced that they would join the resistance if necessary, such as the governor of Illinois, JB Pritzker, or the attorney general of Washington and now governor-elect, Bob Ferguson .

“Federalism is the cornerstone of our democracy. It is the United States of America,” Newson concluded in his post on X.

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The gloomy headlines illustrate how the press and corporate leaders often oversimplify big-company departures from California, leading citizens and state officials to under-examine the factors that lessen the impact of corporate departures and overstate their importance. The same type of doomsaying has played out with other big companies whose headquarters are leaving or have left the state, including Tesla, Oracle and SpaceX. 

In Chevron’s case, discussions of the exit tended to miss or downplay a few key points. Despite talk tying the move to regulations and climate-change litigation in California, CEO Mike Wirth said repeatedly that the relocation was about moving to “the energy capital of the world,” not policy differences with state officials. Also, Chevron already had three times as many workers in Texas as in California at the time it decided to move. And few observers bothered to note the major operations Chevron would retain in the state, including refineries and oil fields.

With other exits, pundits often don’t examine the true effects on state tax revenue. Or take into account the fact that some companies leave key people in California or eventually return. And expansions by companies or startups that pop up here don’t get as much attention, either, the governor and some economists say.

“This is a long narrative in California — about businesses moving out,” said Ted Egan, chief economist for San Francisco. “At the same time, you need to talk about businesses starting up.” 

Understanding the nuances of corporate exits is important because the departures can influence state policy and affect confidence among consumers and businesses. For example, the prospect of tech companies fleeing the state was raised this year by opponents of a California bill, eventually vetoed by the governor, that would have made tech companies test for critical harms from large artificial intelligence systems. Similarly, when Democratic Assemblymember Alex Lee of San Jose proposed a wealth tax last year, the California Chamber of Commerce said in a letter to him that the tax would likely contribute to “California’s business and resident exodus.” It did not pass. The Chamber used identical language in 2022 when successfully opposing various tax increases to fund a single-payer state health care program.

Despite complaints about high taxes, expensive housing and burdensome regulations — grousing that has been going on for decades — the state remains the national leader both for tech startups and for its share of big companies.

“I agree California is a more onerous place to do business,” said David Neumark, a UC Irvine economics professor who has studied relocations. “But it’s not like we’re some basket case.”

When leaving looks like staying

Some companies that recently made high-profile headquarters exits from the state have also either added more California employees or kept the lion’s share of workers here. Any remaining employees in California will continue to pay the state’s personal income tax.

Take Oracle, for example. The tech company announced in 2020 that it was moving its headquarters to Austin from Redwood City, leading to headlines like “Oracle Moves Headquarters to Texas, Joining Valley Exodus” and worries over “California’s higher operational costs and hefty taxes,” not to mention “steeper cost of living,” according to a couple of articles about the news. And yet Oracle as of this past spring still had almost triple the office workers in California than it has in Texas, 6,900 vs. 2,500, Bloomberg reported. A company spokesperson did not return a request for comment. But Redwood City’s data showed the company was still its biggest employer as of 2023. Though Oracle eliminated about 3,000 jobs in Redwood City over the past decade, it retains about 3,757 workers there, or more than 7% of the city’s workforce. 

Oracle continues to pay taxes in California, though because tax records are confidential, it’s hard to know exactly how much. That includes not just sales taxes but corporate income taxes too; moving a headquarters does not necessarily mean a company escapes those.  

“Corporations’ tax has very little to do with where their headquarters or employees are located,” said Brian Uhler, deputy legislative analyst with the state. “For a multinational business, they earn profit in California and outside California. California attributes profits to the state based on what share of a company’s national sales occur here.”

The state taxes corporations based on their sales, property and investments. So if a company earns revenue from sales or transactions in California, the company will pay taxes here regardless of where its headquarters is based. Companies also have to pay employment taxes for their workers based here. And certain types of companies, such as banks and other financial institutions, pay higher or additional taxes.

Another tech company that continues to contribute tax revenue to the state: Hewlett-Packard Enterprise, which announced it was relocating its headquarters to Texas in 2020. Even so, company spokesperson Adam Bauer said last month that the company has about 3,700 employees in Texas and about 3,600 in California. And on the company’s website, there were recently more job openings in California (45) than in Texas (34), including a few sales positions, a Northwest account executive and a “supplier relationship owner” for Nvidia, which is based in California. 

A third company that “left” California without really leaving is Tesla, which has actually grown in the state since its departure. The electric car maker moved its headquarters from Silicon Valley to Austin in 2021. CEO Elon Musk told shareholders that the company’s factory in Fremont was “jammed” and that housing costs in the state were high, making it tough for workers to live near the facility. Musk had also clashed with local health officials about COVID-related shutdowns. The New York Times framed the relocation as a “Blow to California.”

But three years later it doesn’t seem like a particularly severe blow. In 2022, the year after the move, the company “grew to 47,000 employees” in California, it said in a blog post, and ”our production footprint continued to increase.” Then, the next year, Tesla announced it would put its engineering and AI headquarters in Palo Alto, reportedly expecting to locate 1,400 employees in Hewlett-Packard’s former headquarters there. 

California’s Tesla experience makes it hard not to wonder how impactful two other recently announced Musk-related relocations will be. In July, the billionaire said he was moving the headquarters of social media company X and rocket builder SpaceX to Texas from California. Musk cited a law recently signed by Gov. Gavin Newsom that bans the state’s school districts from requiring parents to be notified of a change in their child’s gender identification. Musk has a transgender daughter and has been publicly critical of transgender people’s rights to choose preferred pronouns. He called the law “the final straw” on top of  “many others that preceded it, attacking both families and companies.” 

It’s not clear how many California X and SpaceX employees will actually end up in Texas. A source told the Washington Post that the 120 employees at X headquarters in San Francisco will move to Musk-linked offices in San Jose and Palo Alto, but since then the company has reportedly said in legal filings that it will move X’s headquarters to Bastrop, Texas. LAist quoted experts saying that moving SpaceX to Starbase, Texas, will be complicated and time-consuming since the company’s headquarters in Hawthorne is a huge aerospace facility. X and SpaceX did not respond to requests for additional information.

Similarly, Chevron spokesperson Randy Stuart said the company has not yet decided which of its positions in San Ramon will relocate to Texas. The relocation is not effective until Jan. 1 and the company expects it will take five years to migrate most corporate functions to Texas. Some 2,000 Chevron employees work in California versus 7,000 in Texas but that includes people outside of headquarters working on Chevron’s operations in this state, including crude oil fields, technical facilities and two refineries, which range from the San Joaquin Valley to Richmond to El Segundo. 

Growth can be hard to notice

While big departures like Musk’s get a lot of attention, expansions and new businesses within California tend not to.

In a recent Instagram post, Gov. Gavin Newsom tried to combat what he labeled “misinformation” about California’s economy by touting in-state expansions by well-known companies such as Visa, Ford Motor, Nintendo and Disneyland. He added that “the world’s leading AI companies are expanding right here in California.”

The governor may have a point about those expansions. There weren’t very many headlines — if any — about Visa recently opening a big new office in San Francisco; Ford’s plans to roll out a new electric-vehicle development center in Long Beach early next year; Nintendo’s intention to open a store in San Francisco next year; and Disneyland’s multibillion-dollar expansion over the next decade that promises jobs and community benefits for the city of Anaheim. 

Statewide, about 291,000 new business entities have registered in California this year, according to the secretary of state’s office, compared with 215,000 a decade ago. And that number does not include sole proprietorships, which do not register with the state.

Egan, San Francisco’s chief economist, noted that new AI companies are taking office space in San Francisco, helping the city’s slow recovery from the pandemic-induced boom in remote work. PitchBook, which keeps track of capital markets, recently ranked San Francisco the top city in the world for startups. New York and Beijing were second and third. And a report from PitchBook and the National Venture Capital Association showed that the Bay Area and Los Angeles combined had a total of 746 venture capital deals in the fourth quarter of 2023, compared with 402 deals in New York, the runner-up.

In addition, for the first time since 2014, California as of June has the highest number of Fortune 500 companies, 57, while Texas and New York have 52 each. Newcomers to Fortune magazine’s annual ranking of the world’s biggest companies based on their revenue included California-based companies DoorDash, Workday, Prologis and Clorox. 

Sarah Bohn, labor economist at the Public Policy Institute of California, said the headquarters moves “warrant attention, at a minimum. These moves make headlines, and that’s an important force for how people are feeling about doing business in California.”

Bohn said she is currently doing research to quantify the effects of corporate departures, but that it’s important to remember that there are always businesses moving out of, starting up in, or dying in the state. 

Neumark, the UC Irvine professor, is working with Bohn on that research. He also co-authored a couple of research papers that examined the issue in 2004 and 2007, so he knows the concern about businesses leaving the state is not new. Neumark saw the same worries back then, during the Arnold Schwarzenegger era. There was a lot of talk about companies moving out of California and some “crazy political stuff,” he said. That included the actor-turned-governor showing up at a Las Vegas business with a van marked “Arnold’s Moving Co.” to symbolically help that company move back to California.

Neumark and his fellow researchers found in 2007 that California did not lose a significant number of workers due to business relocations, only about 11,000 jobs a year out of more than 18 million jobs from 1992 to 2004. In the same period, total employment in the state rose by around 106,000 jobs per year, driven by the creation and expansion of new businesses, according to data presented in the paper. The researchers found no evidence of a mass business exodus, saying that the net losses in the number of businesses that left and jobs lost as a result were negligible: 0.05% of businesses in California moved to other states during each of the two worst years, 1993 and 1994; and 0.1% of jobs were lost to relocation during each of the two worst years, 1997 and 1998. He mentioned that a substantial portion of California’s economy is service-oriented, “and restaurants and hospitals don’t move to other states.” 

Complaints from departing corporations

There is no denying that some business executives are fed up with the state. 

After Chevron’s exit last month, the president of moderate business group Bay Area Council, Jim Wunderman, said in a written statement: “It’s an embarrassment for California that we’ve lost so many global companies because of misguided policies that make it incredibly difficult to do business here.”

In an interview with CalMatters, Wunderman said it’s time for a “reckoning.” He said lawmakers and officials need to rethink policies that make it hard to build housing, or drive up the cost of energy. “I understand we’re going through an energy transition. Do we have to do it in a way that we exacerbate economic problems in the state?”

He pointed to a bill, recently signed into law by the governor, that aims to curtail traffic and air pollution from warehouses. “We’re constantly regulating things to make it more difficult for businesses. (The warehouse bill) particularly affects the Inland Empire, whose economy is built around that industry.” By possibly reducing the number of job opportunities at warehouses, Winderman said the new law could hurt the very people it’s trying to protect.

California’s flat corporate income tax rate of 8.84% of a company’s net income is the sixth highest in the country, according to the right-leaning think tank Tax Foundation. Conservative legislators also criticized a recent decision by the governor and Legislature to suspend certain business tax deductions and limit tax credits for three years to close the budget deficit, saying such suspensions have become too common. 

On the other hand, the state’s corporate tax rate has actually declined over the past few decades, with state lawmakers slashing it from 9.6% to 9.3% in 1987, then to its current rate in 1997. The California Budget & Policy Center, a left-leaning think tank, said in a 2022 analysis of state data that corporate tax breaks have lessened the tax burden on California businesses over the years.

Ahmad Thomas, CEO of Silicon Valley Leadership Group, which advocates for big tech companies, said, “The challenge we have is the cost of doing business and operating in California continues to increase. How do we mitigate that?”

Thomas said California’s “competitive advantage continues to be chipped away at year after year by competition” that is global. He mentioned that there needs to be “more innovative solutions… around our cost structure connected to our tax policy,” as well as more affordable housing. 

He wants industry and policymakers to work together to drive down the cost of living here, while trying to minimize additional taxes to businesses.

Still, business leaders get something in exchange for grappling with those challenges: access to capital, a skilled workforce, world-class universities and more.

“Full stop, I believe there is no better place to locate, grow and scale a company than in California,” Thomas said. 

And not all state policies and laws drive business away. They help create them.

Bohn of the Public Policy Institute of California said the state continues to have policy levers, such as tax credits, that it can use to target businesses it wants to keep in the state.

partial homecoming that California legislation and policies on clean vehicles helped spur the company’s rise to electric-vehicle dominance. It is the most valuable automaker in the world and responsible for the bulk of Musk’s wealth, which reportedly will soon stretch beyond $1 trillion. Tesla’s success wouldn’t have happened without California, where the company has received at least $3.2 billion in direct and indirect subsidies from the state, with the bulk of those being tax credits for zero-emissions vehicles, according to estimates from Newsom’s office reported by the San Francisco Chronicle. 

At the press conference, Musk stood stiffly by as Newsom bragged about the state’s pivotal role. But then the billionaire also made an admission that might startle those who think California businesses are beset by red tape and entitled workers: Tesla’s Fremont factory is the most productive automotive plant in North America. 

“It will probably be about 600,000 or more cars this year,” Musk said. “California is a tremendous manufacturer as well as a place of engineering innovation.”

That’s a point, Newsom added, “which is, again, often so lost.”

The post How to stay calm when Elon Musk says he’s leaving California — and other lessons from business relocations appeared first on The Hemet & San Jacinto Chronicle.

The countywide jobless rate in August, based on preliminary EDD estimates, was 6.2%, compared to 6% in July.

According to data, the August rate was more than a half-percentage point above the year-ago level, when countywide unemployment stood at 5.5%.

Mecca had the highest unemployment rate countywide in July at 14.7%, followed by Coachella at 14.2%, Cherry Valley at 11%, Rancho Mirage at 8.7% and Indio at 8.6%.

The combined unemployment rate for Riverside and San Bernardino counties — the Inland Empire — in August was 6%, up from 5.9% in July, the EDD said.

Bi-county data indicated payrolls shrank by the widest margin in the agricultural sector, which shed a total 2,500 positions. The construction, financial services, hospitality, information technology and manufacturing sectors recorded aggregate losses totaling 2,300.

Miscellaneous unclassified industries additionally shed about 700 jobs, according to figures.

In the plus column, across the IE, the health services, professional business services, public and transportation sectors increased payrolls by an estimated 10,000 positions.

Only the mining sector was unchanged in August.

The statewide non-seasonally adjusted unemployment rate last month was 5.9%.

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