President Trump’s trade war and recent immigration raids are expected to deliver a one-two punch to California’s economy.
A new report by the UCLA Anderson forecast predicts that the state’s economy is likely to contract later this year due to fallout from global tariffs and immigration raids in Los Angeles and other cities that have rattled key sectors, including construction, hospitality and agriculture.
The quarterly forecast, released Wednesday, characterized the this year’s second quarter as “a period of significant volatility and uncertainty,” driven by “dramatic policy shifts and financial market (over)reactions.” The report suggests that California’s economy will grow slower than the nation’s this year.
Jerry Nickelsburg, the director of the Anderson Forecast and author of the California report, said the “confusion and uncertainty” about the rollout of both immigration and trade policies “has a negative economic impact on California.”
“Because people are afraid to go to work, because companies don’t know what their cost structure is, because consumers or households who might be thinking about buying a house are less sure of their future or near-term future employment situation,” Nickelsburg said in an interview. “You have widespread decision paralysis in terms of making investment in consumption and labor decisions, which will be resolved [once] there’s more clarity as to what the long-run policy of the U.S. government is.”
The report details the sectors that will be affected by deportations, which include food processing, agriculture, healthcare, social services, retail, leisure and hospitality.
There will also be an effect on construction, an industry in which demand has increased because of fire recovery and rebuilding work as well as efforts to alleviate the housing crisis in the state.
Construction will also be hit hard by tariffs since sources of building materials include a significant level of imports from China, Mexico and Canada, the report outlined.
Traffic at the state’s ports, often viewed as an indicator of the state of California’s economy, has surged this year, but forecasters say that bump reflects an attempt to bring goods into the country before higher tariffs could be imposed.
Forecasters also predict that there will be several quarters of negative job growth in the state and that California’s unemployment rate will peak at 6.1% this year.
Although jobs in key sectors such as construction and manufacturing might be in high demand if immigration raids continue to decrease the amount of workers in those fields, Nickelsburg said that probably won’t help many facing unemployment.
“The fact that California’s unemployment rate is going up doesn’t mean that those people can now just go and work in construction,” he said. “They might not have the right skills, they might not have the physical strength and stamina. They might not be able to or they might be really disinterested in that kind of work.”
Some of the factors contributing to the unemployment rate, the report says, include a decrease in employment in the entertainment industry and cutbacks by big tech.
The average unemployment rate for 2025 is expected to be 5.8%, which is forecast to decrease to 5.6% in 2026 and 4.4% in 2027.
Over the first four months of the year, California lost 50,000 payroll jobs and the unemployment rate remained above 5%.
