How New Federal Policies Are Reshaping California's Economy

President Trump's second term has ushered in significant economic policy changes that are already affecting California's business landscape. From trade tariffs to immigration enforcement, these shifts require businesses to adapt quickly to remain competitive.

The Tariff Strategy: What It Means for Your Supply Chain

The Trump administration has implemented significant changes to America's trade policy, including:

• Higher tariffs on Chinese imports (increased by 10 percentage points)

• Proposed tariffs on Mexican and Canadian goods (temporarily postponed until March 1, 2025)

• Potential additional tariffs on other trading partners being considered

For California businesses relying on international supply chains, these tariffs represent an immediate challenge. The cost of these tariffs will primarily be passed through to consumers, as was the case during the 2018 trade disputes. This is expected to push inflation temporarily into the low 3% range in 2025.

What smart businesses are doing: Companies are diversifying their supplier networks beyond the most heavily tariffed countries. According to analysis of the 2018-2019 trade tensions, while imports from China fell by 30%, imports from Vietnam, Taiwan, South Korea, and India increased significantly.

Immigration Policy Changes: Labor Market Disruptions

The administration's immigration enforcement initiatives include:

• Targeted deportation of undocumented immigrants (aiming for up to one million annually)

• Potential changes to work visa programs, including H-1B visas commonly used in California's tech sector

These measures are expected to create significant labor shortages in several key California industries:

• Agriculture and food processing

• Construction

• Hospitality and leisure

• Retail trade

• Health care and social services

What this means for wages: With California already near full employment and many positions in these industries currently filled by undocumented workers, we're likely to see wage inflation rise to around 4% by 2026 as employers compete for scarce labor.

Five Ways These Policies Will Impact Your California Business

1. Higher Operating Costs Due to Inflation

The combined effect of tariffs and labor shortages is expected to drive inflation higher than previously projected. This will particularly impact:

• Fixed-income Californians

• Low-income consumers

• Businesses with tight profit margins

• Industries with price-sensitive customers

Action plan: Review your pricing strategy and consider how to absorb or pass on increased costs while remaining competitive.

2. Labor Shortages in Key Sectors

Industries that rely heavily on immigrant labor will face significant workforce challenges. UCLA Anderson Forecast analysis shows that sectors expected to contract include:

• Health care and social services

• Leisure and hospitality

• Agriculture and food processing

• Retail trade

Did you know? According to industry reports, many of these sectors were already facing labor shortages before these policy changes, meaning the impact could be even more severe than anticipated.

3. Housing Construction Challenges

California's housing crisis may worsen due to:

• Workforce reductions in construction from deportations

• Higher interest rates as the Federal Reserve responds to inflation

• Increased material costs due to tariffs (especially on Canadian lumber and Mexican gypsum)

According to industry analysis, nearly 70% of America's lumber imports come from Canada, and 71% of gypsum imports (used in drywall) come from Mexico - both potentially subject to new tariffs.

For homeowners and investors: Property values in areas with significant undocumented populations may decline. Analysis of rural California counties shows that a 1% decline in population typically yields a 1% decline in home prices.

4. Supply Chain Disruptions

California's logistics industry, centered around the ports of Los Angeles and Long Beach, will likely experience:

• Initial disruption as trade patterns adjust

• Potential long-term shifts in shipping routes and volumes

• New opportunities for businesses that can quickly adapt

Historical perspective: During the 2018 tariffs on China, container traffic through Southern California ports initially declined by 9% but later rebounded as supply chains adjusted.

5. Tech Sector Growth Opportunities

While many sectors face challenges, California's technology industry may benefit from:

• Increased demand for labor-saving technology as businesses adapt to workforce shortages

• Federal policy emphasis on technology development

• Potential favorable changes to H-1B visa allocation for the tech sector

Strategic Planning for California Businesses in 2025-2026

Immediate Preparedness Steps

1. Audit your supply chain for tariff vulnerability and identify alternative suppliers

2. Review your workforce strategy, especially if you operate in sectors likely to face labor shortages

3. Adjust financial projections to account for higher inflation and potential interest rate impacts

4. Explore technology investments that could reduce labor dependencies

Long-Term Considerations

The UCLA Anderson Forecast projects:

• California unemployment rate rising to 5.8% (remaining above 5% until late 2026)

• Consumer prices in the lower 3% range for the next two years

• Real income growth from increased tech sector activity

• Muted employment growth at approximately 1% annually

Your Business Action Plan

Don't let policy uncertainty derail your business growth. Our comprehensive guide to navigating these economic changes helps California businesses not just survive but thrive during this transition.

[Download Our Free California Business Survival Guide]

This detailed roadmap includes:

• Industry-specific strategies for adapting to new economic realities

• Supply chain diversification templates

• Labor market navigation tools

• Financing options during inflationary periods

Expert Analysis and Custom Solutions

Need personalized guidance for your specific business challenges? Our team of economic and business strategy consultants specializes in helping California companies navigate policy shifts successfully.

This analysis is based on data from the UCLA Anderson Forecast, U.S. Census Bureau, U.S. Bureau of Economic Analysis, and industry reports from the National Association of Home Builders. The economic projections represent a preliminary assessment and may change as policies evolve.

Additional information sourced from the Peterson Institute for International Economics and port authority statistics from Los Angeles and Long Beach.