California Is at Unique Risk From a Second Trump Term
California Is at Unique Risk From a Second Trump Term
(Bloomberg) -- When California sold bonds last year, three of the four new risks the state alerted potential investors about had to do with the policies of President Donald Trump. Chances are a second term would add to that list.
The Democratic stronghold and world’s fifth-largest economy, which kicks off a $2.2 billion bond sale Monday, has established itself as a foil to the Trump administration, and with that come risks. The state has said that Trump’s trade, immigration and health care policies could undermine California’s revenue.
The Trump administration most recently inserted itself into California’s enduring water wars by promising more irrigation for farmers than state policy dictates and has attacked long-standing climate policies, including the state’s authority to set aggressive emissions-cutting mandates on vehicles. He wants to allow oil and gas drilling on its coastlines and is blocking the state’s managed-care tax used to finance health care for low-income residents.
“Everything we stand for seems to be a target to this administration,” said California’s top state senate Democrat, Toni Atkins. “The ramifications for California are pretty dire.”
But it is Trump’s focus on crimping immigration and rolling back trade agreements that could undermine California so much that it could reduce its economic growth, said Stephen Levy, director and senior economist of the Center for Continuing Study of the California Economy in Palo Alto.
Fruit and Ports
The most populous U.S. state relies on immigrants not only for its agriculture interests -- it supplies two-thirds of the country’s fruits and nuts -- but for highly skilled work in the technology industry. And about 20% of jobs in California, home to two of the nation’s busiest container ports and a major gateway to Asia, depend on international trade.
“A second Trump term would be terrible for the California economy,” Levy said.
So far though, California’s economy has fared well despite Trump’s first term. California’s economic growth -- fueled by global-reaching industries such as technology -- has outpaced the U.S. gross domestic product since 2011. It accounts for more than 15% of the nation’s job gains during the current expansion. California is home to 15% of the companies on the Standard & Poor’s 500 index and 47 billionaires, who benefited greatly from Trump’s tax cuts.
Democrats say Trump has a history of punishing states that have policies he opposes. New York Governor Andrew Cuomo cited what he called “political extortion” by Trump in banning residents there from using programs that allow speedier customs and immigration checks and for stalling federal approval of key transportation projects.
“Frankly, California is not one of the president’s favorite states,” said Howard Cure, head of municipal research in New York at Evercore Wealth Management. “He may go out of his way to think of ways to hurt certain programs within the state. My guess is the state would do better under a different administration.”
Since Trump took office, his administration and California have been mired in more than 70 lawsuits against each other, the majority of them environmental cases. The president and California’s first-term governor Gavin Newsom have traded barbs over Twitter, and Trump has threatened federal intervention, without giving specifics, over the state’s deepening homeless crisis.
Despite California’s blue-state bona fides, swaths inland such as the agricultural region are firmly Trump country, and the president has sought to boost his appeal there. In February, Trump visited Bakersfield for a ceremony attended by cheering supporters to sign a memo relaxing environmental protections to deliver more water to farmers. Environmentalists -- and as the state said in a subsequent lawsuit -- said his plans will endanger fish.
Newsom had been trying to get both sides of the water wars to reach voluntary agreements on how to deliver water and balance environmental concerns.
“The president’s action just undid his ability to get that done in a very direct and serious way,” Atkins said. “The governor was almost there in terms of these agreements, and the president basically pulled the rug right out from under California’s feet on that one.”
--With assistance from Jack Witzig.
To contact the reporter on this story: Romy Varghese in San Francisco at rvarghese8@bloomberg.net
To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois, William Selway
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