California overtakes Japan to become world’s fourth-largest economy. But tariffs pose threat
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If California were its own country, its economy would now rank as the fourth-largest of any nation across the globe, Gov. Gavin Newsom said, a new milestone that comes at a time of major economic turbulence.
California has long been a global powerhouse, fueled by a variety of sectors including technology, agriculture, tourism and entertainment. The new ranking comes as the state is facing challenges from a trade war with China and other nations that are key California trading partners.
Newsom announced the state’s new economic ranking Wednesday after recently released data from the International Monetary Fund and the U.S. Bureau of Economic Analysis indicated that California’s nominal gross domestic product now exceeds Japan’s.
According to the data, California’s nominal GDP reached $4.1 trillion, surpassing Japan’s $4.02 trillion. That places the Golden State behind only the United States at $29.18 trillion, China at $18.74 trillion and Germany at $4.65 trillion.
“California isn’t just keeping pace with the world — we’re setting the pace,” Newsom said in a statement. “Our economy is thriving because we invest in people, prioritize sustainability, and believe in the power of innovation.”
Of the top-four global economies, California’s is also the fastest growing, according to data and Newsom’s office. Its nominal GDP grew at a rate of 6% in 2024, outpacing the U.S.’ overall 5.3% rate, China’s 2.6% rate and Germany’s 2.9% rate. Meanwhile, Japan’s growth has declined when measured in U.S. dollars, due in part to exchange-rate fluctuations and a drop in population.
In 2023, California’s gross domestic product was about $3.9 trillion, comprising roughly 14% of the national GDP, according to data published in January by the Public Policy Institute of California.
California’s population grew by almost a quarter of a million in 2024, according to the U.S. Census Bureau. Experts say the figures represent an important turnaround.
Newsom attributed California’s showing to a growing population and record tourism spending coupled with a high concentration of venture capital and new business ventures. He also touted the strength of the state’s agricultural, high-tech and manufacturing centers.
Growth in jobs and businesses have largely powered the state’s economy. And the Golden State has benefited from its ties to the global marketplace and its position as the hub of the world’s entrepreneurs, experts say.
“We’ve known for a long time that California is a very powerful economy. We have 40 million people. We have very productive workers and we have some unicorn businesses that have started here and continue here, such as Apple and Google,” said Lee Ohanian, an economics professor at UCLA.
Real estate and finance have for decades been the largest contributors to the state’s GDP. The professional services and information industries, driven largely by tech, have also grown significantly, data show.
California’s labor market grew by roughly 30% — or 4.2 million jobs — between 1998 and the second quarter of 2024. Over the same time frame, the number of businesses with employees expanded more than 72%, according to the Public Policy Institute of California report.
The new data come at an uncertain time for the country as economists and business owners continue to sound the alarm about the toll a trade war could take on the economy, both in the United States and California.
President Trump’s tariffs could hammer Southern California’s nearly $300-billion trade and logistics industry in the coming years, according to a Los Angeles County Economic Development Corp. report released this week.
The effects of tariffs could jeopardize California’s ability to remain in fourth place, Kevin Klowden, executive director of Milken Institute Finance, told The Times in an email.
“Shipping and logistics make up a huge part of the economy as do California’s ties in supply chains, exports and entrepreneurial activity, especially to Asia,” Klowden said. “California is benefiting from the exemptions on computers and phones, but it is more exposed to world trade than most states. The main threat though is probably India, provided it is also not hit hard by tariffs.”
Last week Newsom announced a lawsuit challenging Trump’s executive authority to enact international tariffs without the support of Congress, calling the president’s economic policies a “wrecking ball” to America’s global reputation.
Amid news of visa cancellations and deportations, state and local tourism officials are increasingly worried about the potential adverse effects on travel to Los Angeles and California.
The legal action argues that the International Emergency Economic Powers Act that Trump cited to impose tariffs does not grant the president the ability to unilaterally adopt tariffs on goods imported to the U.S.
Newsom’s office said California engaged in $675 billion in two-way trade last year and stands to lose billions in state revenue under Trump’s initial tariff policies. Some tariffs have since been relaxed.
“While we celebrate this success, we recognize that our progress is threatened by the reckless tariff policies of the current federal administration,” Newsom said in a statement this week on the new economic milestone. “California’s economy powers the nation, and it must be protected.”
As U.S. and global markets tumbled following Trump’s tariff announcement, Newsom announced that California would look for ways to expand trade and persuade international partners to continue working with the state, which he referred to as the “tent pole of the U.S. economy.”
The last time California advanced in world economic ratings was 2018, when its nominal GDP surpassed the United Kingdom’s to move into fifth place. India’s economy, which is currently $3.90 trillion, is predicted to overtake California’s in 2026, according to current data trends.
And even amid economic growth, the state is grappling with deep financial inequalities that persist between its various regions and other headwinds that could hamper further prosperity.
In 2023, the Bay Area’s per capita income was $131,000, more than double that of the Inland Empire and Central Valley. Twenty-five years earlier, the regions had a roughly $32,000 difference at most in per capita income, according to the PPIC analysis.
The chronic problems of housing unaffordability, homelessness, delayed infrastructure improvements, issues surrounding water storage and conveyance, and the loss of private-sector jobs could be barriers to additional growth, Ohanian said.
Since September 2022, California’s private sector has lost a net 154,000 jobs, while the public sector has gained 361,000, according to last year’s Legislative Analyst’s Office report.
“We need those private-sector jobs because they provide the tax base and tax revenue that fund what the state and local governments do,” Ohanian said. “If we can make progress on those fronts, then I think California growth will accelerate.”
Times staff writer Taryn Luna contributed to this report.
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