President-elect Donald Trump’s announced plans for mass deportations and tariffs on Mexico create a “shadow of uncertainty” for the California economy, according to the latest forecast by the UCLA Anderson School.
“Tariffs will raise price levels on many goods and services. Deportation will create labor shortages in agriculture, non-durable goods manufacturing, construction, and leisure and hospitality services,” according to the quarterly report.
UCLA Economist Clement Bohr said the general nature of the incoming administration’s polices is clear, and despite uncertainty about the specifics, “they all point in one direction: the impact they will have on the cost of living.”
Bohr predicted the tariffs will add 0.9% to inflation, while deportations will push wage inflation to over 4% by 2026.
National GDP growth will dip below 2% in the second half of 2025, he said, then “partially recover” by the end of 2026 “as the economy adjusts to the tariffs and the changing composition and size of the labor force.”
In a companion report on California, UCLA Anderson Forecast Director Jerry Nickelsburg said negotiations with Mexico could limit the impact of tariffs, but deportations would undermine employment in agriculture, construction, hospitality, health care, daycare and other services.
“This employment picture leads to a relatively weak California forecast for 2025 and a slow trajectory toward the national unemployment rate thereafter,” Nickelsburg said.
He said California’s economy will likely grow at about the same rate as the national economy in 2025 and 2026. He predicted an average unemployment rate of 5.3% during the fourth quarter of this year, while the average for 2025 will be 5.5% and then 5% in 2026.
On bright spot could be a new policy on H1B visas for workers in the tech industry, which would benefit California companies.
Bohr said the economic forecast was based on UCLA economists’ best guesses about policies in 2025 and much could change because of the “often-shifting preferences of the president-elect.”
The UCLA Anderson Forecast is one of the most often-cited economic outlooks for California and the nation.
City News Service contributed to this article.
