Business & Economy

6 ways Trump's victory could change California's economy

The updated forecast for California is slightly more optimistic through the end of next year and less optimistic in the latter part of 2018.
The updated forecast for California is slightly more optimistic through the end of next year and less optimistic in the latter part of 2018.
Jeff J Mitchell/Getty Images

Listen to story

00:57
Download this story 0.0MB

Like just about everyone else, economists at the UCLA Anderson Forecast were assuming Hillary Clinton would win the presidential election. Their economic forecasts for the next few years were based on that assumption.

Now, they have to recalibrate. 

"To be sure, the risks to the forecast as we try to see through this Trumpian marine layer are about as high as they have ever been, maybe higher," writes Jerry Nickelsburg, senior economist at the UCLA Anderson Forecast, in an essay comparing trying to forecast the economy right now with navigating a ship without GPS. 

The Anderson Forecast, which has come out quarterly for more than 60 years, is used by businesses to gauge the health of the local, state, and national economy. 

Here are some of the things UCLA economists expect to happen in California under Trump:

A defense boom 

“The increase in defense spending will be disproportionately directed to California, as sophisticated airplanes, weaponry, missiles and ships require the technology that is produced here,” writes Nickelsburg. “Moreover, there are few places to build the proposed 150 new warships, and San Diego is one of them. Regionally we expect a positive impact in the Bay Area and in coastal Southern California."

Higher wages 

Whatever you think about Trump's immigration policies, the forecast says mass deportations could raise wages for lower-income earners.

"The enforcement of immigration laws under President-elect Trump will reduce the low-skilled labor supply in L.A," writes UCLA Anderson economist William Yu. "A simple economics supply-and-demand analysis tells us that the equilibrium wage of low-skilled workers will rise."

More expensive housing 

One downside of higher wages: With workers earning more, there will likely be more demand for housing and, as usual, there will not be nearly enough supply. Therefore, housing will only get more expensive.  

"What we should expect is rising wages inducing skilled people who will then be able to afford the California lifestyle to move to the Golden State," writes Nickelsburg. One upside: Rents will not go up as quickly because there will be fewer low-wage workers competing for apartments. 

A farmworker shortage

"It is estimated that half the farm workers in California are undocumented," writes Nickelsburg "If these numbers are even close, there will be a crisis in the Central Valley. Farmers are going to be paying more, perhaps a lot more, for farm labor, if they can find it at all, and it will take some time before they can switch to producing crops that can be harvested by machines."

More infrastructure spending

"The infrastructure package may or may not be directed to California depending on a host of considerations," writes Nickelsburg. "The Western Electrical Grid needs to be replaced and there is room for high-speed rail and water infrastructure. In addition, there is a need to repair and replace city roads within California."

But one factor that might complicate California's chances at benefiting from increased infrastructure spending is the state and many large cities' status as sanctuaries for undocumented immigrants. 

"On the campaign trail President-Elect Trump stated that he would block funds to sanctuary cities," Nickelsburg writes. "So how much comes our way is an open question."

A trade war, or more exports

The report says the Los Angeles area could gain an additional 24,000 logistics jobs should trade negotiations have a positive outcome. But if negotiations go badly – and the U.S. gets into a trade war with China – 24,000 jobs could be lost.