In summary
A variety of decisions and statements from President Donald Trump created a great deal of economic uncertainty, especially in California.
California is ending the year in much the same way it started: uncertain about what impact President Donald Trump’s policies and actions will have on its economy.
Immigration raids and the threat of them negatively affected the state’s residents, communities and labor markets in different industries. Farmworkers and farmers are anxious about the future. Citizens and noncitizens of Los Angeles and surrounding areas lost work after the raids, according to one study.
California, home to some of the nation’s busiest ports, had to deal with ever-changing tariffs. The agricultural and wine industries worried about higher costs and their ability to maintain relationships with their export partners, who received not just tariff threats but other presidential rhetoric. For example, Trump’s talk of annexing Canada angered some Canadians and affected tourism into the state and the rest of the nation.
The tech industry dealt with a mishmash of policies that included Nvidia agreeing to revenue-sharing with the federal government; the U.S. taking a stake in Intel; and new fees on H-1B visas. Still, the hype around artificial intelligence has been mostly a boon for the industry, especially Big Tech, which helped drive tax revenue to state coffers.
Property insurance has also had a big effect on California’s economy. For years, insurers have shied away from writing policies in the state, citing increased wildfire risk. Insurance Commissioner Ricardo Lara this year implemented new regulations meant to encourage companies to resume writing policies, but the Los Angeles County fires in January complicated the issue. Now fire survivors complain that insurers are trying to raise rates while delaying or denying claims, and have called for Lara to resign.
2026 outlook
Higher spending, partly because of federal funding cuts, means a nearly $18 billion budget deficit next year, the Legislative Analyst’s Office predicts. That could include trying to fill gaps in spending on health care, education, homeless housing and more.
The state’s unemployment rate hovered above 5% and was among the highest in the nation for most of 2025. U.S. labor market forecasts for next year are mostly gloomy, with economists from jobs website Indeed predicting a possible continuation of what they called a “frozen” labor market. Likewise, Wells Fargo economists said in late November that “a stalled job market” was a factor in slipping consumer confidence. In tech and other industries, the double-edged sword that is the AI boom could continue to be a factor in layoffs. On the immigration front, continued raids could have the greatest impact on the nearly 3.3 million Latino immigrants who make up 16% of the state’s labor force, according to the UCLA Latino Politics & Policy Institute.
