Donald Trump’s election has created a wave of uncertainty for the California and Southland economy, with his hardline stances on immigration and trade policy carrying potential risks, while a possible up-tick in defense spending could be a boon, according to a UCLA economic forecast released Tuesday.
Jerry Nickelsburg, senior economist with the UCLA Anderson Forecast, noted in his report on the state economy that Trump’s proposed increase in defense spending “will be disproportionately directed to California as sophisticated airplanes, weaponry, missiles and ships require the technology that is produced here.”
“Moreover, there are few places to build the proposed 150 new warships, and San Diego is one of them,” Nickelsburg wrote. “Regionally, we expect a positive impact in the Bay Area and in coastal Southern California.”
California could also benefit from potential federal spending on infrastructure repair and upgrades, but Trump’s stated intention to limit funding for “sanctuary cities” – a label generally placed on cities like Los Angeles and San Francisco, which are regarded as friendly to immigrants without visas – could throw the impact of such an effort into question. Nickelsburg noted, however, that Republicans may not be able to get an infrastructure-funding package approved without support from the state’s sizeable congressional delegation, meaning there would have to be some assurances of funds being spent locally.
Trump’s proclaimed intention to re-negotiate trade deals – most notably with China and Mexico – is also a wild card for the local economy.
“It may be that the stick works and the trade deals are re-negotiated with a larger volume of trade going both ways,” Nickelsburg wrote. “It is hard to say, and not the most likely outcome we see with our national forecast. Quite possibly there will be a reduced volume of trade, and depending on whether or not the stick is swung, maybe a greatly reduced volume of trade.”
Despite all of the questions, Nickelsburg said the new forecast for the coming years is “slightly higher than our previous one through the end of 2017.”
“This reflects the stimulus assumed in the national forecast, particularly through the defense appropriations,” he wrote. “The weakness relative to the U.S. after that reflects the fact that California, having already reached near full-employment will benefit less from further stimulus than rust belt states and the fact that deportations of unskilled workers will impact food harvesting and food processing.”
In a separate report, UCLA Anderson Forecast economist William Yu suggested that Trump’s vow to deport immigrants with criminal records living in the country illegally could have a notable impact in Los Angeles County, which Yu estimated houses at least 1 million undocumented immigrants.
“… We expect some undocumented immigrants will voluntarily choose to leave L.A. County for three reasons:
“– Because of enforced immigration laws, undocumented immigrants would have a harder time finding jobs;”
“– The rising cost of housing in L.A. has been driving low-wage immigrants to other low-cost counties or states already, and this will continue;”
“– California’s minimum wage incrementally rising to $15 over the next few years will reduce some employment opportunity in low-wage fields,” Yu wrote.
A Trump crackdown on immigration “will reduce the low-skilled labor supply in L.A.,” according to Yu, who said it is still unclear what impact Trump’s policies will have on “high-skilled immigrants.”
“He and most economists know high-skilled immigration has always been a contributor to our nation’s competitiveness, dynamism and innovation,” Yu wrote. “That said, we might even see Trump expand the gate of high-skilled immigration to fuel his pro-growth Trump Train.”
“… For better or for worse, Los Angeles would probably evolve and transform to be more like the Bay Area with more residents, native and immigrant, of high human capital and skills. The high cost of housing problem will persist. If L.A. wants to be a more inclusive and prosperous metro for middle-class Americans, high-density development is the key.”