It has just surpassed Japan.

California’s economy has surpassed Japan’s, making the Golden state the fourth largest economy in the world, Governor Gavin Newsom announced on Thursday.

The state’s nominal GDP reached $4.1tn, according to data from the International Monetary Fund and the US Bureau of Economic Analysis, edging out Japan’s $4.02tn nominal GDP. California now ranks behind the US at $29.18tn, China at $18.74tn and Germany at $4.65tn.

This took me by surprise. I knew that California had a large economy but did not realize that it was this large, and because of its high growth rate, maybe on track to become even larger than Germany and be third.

The state has outperformed the world’s top economies with a growth rate in 2024 of 6% compared with the US’s 5.3%, China’s 2.6% and Germany’s 2.9%. This week’s new rankings come six years after California surpassed the United Kingdom and became the world’s fifth largest economy.

The state’s population is just under 40 million, which places it at #39 in rankings of population by country, just below Canada. The per capita GDP of California is $102,500 while that of the rest of the US is $73,529.

Like many other Democratic states, it sends more to the federal government than it receives from them, whereas most Republican states receive more than they send. So Republicans, who love to whine about how ‘their’ money goes to the undeserving, are in reality the ones who are living off the wealth of others.

California is a major contributor to economic growth nationally, with the money it sends to the federal government outpacing what it receives in federal funding by $83bn, according to a statement from Newsom’s office.

Despite an enormous shortage of affordable housing that has fueled a homelessness crisis in the state, the population has grown in recent years. Meanwhile, last year the state reported its tourism spending had hit an all-time high – though California has seen a drop in some areas.

Canadian tourism in California was down 12% in February compared with the same month last year amid Trump’s tariff war. In response, the state has announced a new campaign to draw Canadians back, while one city has put up pro-Canada signs across its downtown.

But the governor Gavin Newsom warns that California’s economy could be hurt by Trump’s actions.

One of the features of Trump is how he seems to view China as not merely a trade rival to be competed with but as an arch enemy to be vanquished, while viewing Russia as a friend. There are many pieces of evidence for this but perhaps the most significant is how he he has imposed massive tariffs on just China (while backing off on most of his tariffs on the rest of the world) while Russia was excluded from all the tariffs. It is a curious reversal of long standing US foreign policy that viewed Russia (as the successor to the Soviet Union) as the enemy symbolizing the evil empire of Communism while Richard Nixon began the policy of engaging with China.

The contrast between China’s and Trump’s policy-making cannot be starker. China is big on long-term planning with its five-year plans, ten-year plans, and even longer-term strategic planning while Trump careens from one policy to another as the whim seems to strike him, reversing himself sometimes within a few days. He wants to somehow hurt China and thinks that high tariffs will damage their economy and cause them to grovel before him.
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What happens when you are confronted by an enemy and you fire all the weapons in your arsenal at it but after using up all your ammunition, you still fail to stop it and it keeps coming at you? Your only option then is to run like hell in the opposite direction. This is what Trump is learning.

Trump is finding this out the hard way as we can see from his reversals on tariffs, something that is comical to watch if it were not causing serious gyrations in the world economy. To his ignorant brain, the problem with the US economy was that it was running a global trade deficit in terms of goods. (It is running a global trade surplus in terms of services but since that is not something tangible, he does not seem to care as much about it.) He wants the US to have a global trade surplus on goods and thinks that the way to do that is to hugely raise tariffs on imports, making imports more expensive and thus reducing the local demand. He also wants to raise government revenue so that he can provide a tax cut for the wealthy, the desirability of which has long been an article of faith for Republicans, but which is in stark contradiction to their professed goal of cutting the deficit since their tax cuts would cause the deficits to skyrocket.

One can see how Trump would think that he could solve both problems with one stroke, by massively raising tariffs on imports. This would result in imports getting reduced while also raising revenues for the government, never mind that those two results work against each other since reduced imports would also mean reduced revenues. No doubt he thought that even if imports came down, the extra tariffs would still increase revenues. Of course there is the problem, known to anyone with even the mildest grasp of trade, that tariffs are paid by the importer and passed on to the consumer so any rise in revenues is effectively a tax increase on US consumers. Trump tried to bluff his way out of that by falsely claiming that the exporting countries would be paying the tariffs, something that even he, as ignorant as he is, could not possibly believe but thinks that the rubes will buy it.
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All of us are inundated with offers of a free trial period for some goods or services. The sellers of those products, from drugs to magazine subscriptions, know that it helps to get people hooked on their product and that there is no better way to get people addicted than to offer it free for a short period.

This also happens at the governmental level and Renee Dudley of ProPublica reports that major companies like Microsoft and Elon Musk’s Starlink are using this tactic in order to get the US government dependent on them so that they cannot escape giving them long-term contracts.

A few weeks ago, my colleague Doris Burke sent me a story from The New York Times that gave us both deja vu.

The piece reported that Starlink, the satellite internet provider operated by Elon Musk’s SpaceX, had, in the words of Trump administration officials, “donated” internet service to improve wireless connectivity and cell reception at the White House.

The donation puzzled some former officials quoted in the story. But it immediately struck us as the potential Trump-era iteration of a tried-and-true business maneuver we’d spent months reporting on last year. In that investigation, we focused on deals between Microsoft and the Biden administration. At the heart of the arrangements was something that most consumers intuitively understand: “Free” offers usually have a catch.
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Why did Trump, after insisting that the tariffs were here to say and rejecting any pause on their implementation, cave this morning and reverse himself, pausing them for 90 days? This caused the stock markets to shoot up today.

I said in an earlier post that my belief that Trump only cared about the stock market was proven wrong by the huge tariffs he imposed on pretty much every country, since he had to have known that such a move would tank the markets. Of course, it is always possible that he had the absurd idea that since he was imposing tariffs on goods imported to the US, the US stock market would remain stable and even rise while only those of other countries would fall. In a global economy, that would have been unrealistic since stocks tend to rise and fall together but we have to remember that we are dealing with an idiot and anything is possible when it comes to speculating about his thinking.

So why did he impose the tariffs in the first place?
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When last Wednesday Trump announced his huge set of tariffs on every country, the stock markets tanked globally on Thursday and Friday. Then on Monday and Tuesday, Trump insisted that the tariffs were here to stay and that there would be no pause in them going into effect but the markets rallied somewhat because, as is often the case after a big sell off, some investors swoop in to buy stocks that they think are now available at bargain prices.

Then today, Trump abruptly announced what he had said he definitely would not do and that is issue a 90-day pause in the implementation of the tariffs, though it was not clear whether it meant all the tariffs or just some, since he also announced that tariffs on China would increase to 125% after they said that they would impose tariffs of 84% on US goods in retaliation to the earlier US tariffs. But despite that ambiguity in exactly what the pause meant, the stock market surged upwards today.

Which raises the obvious question: Who in addition to Trump would have known about these policy actions and reversals? Because whoever knew could make a killing on the stock market.
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Trump has released his big tariffs plan and most observers are stunned, not just by the size and scope of the tariffs ,but also by the bizarre reasoning that has been given for the numbers

It is clear from the reasoning given for the sizes of the tariffs that Trump sees things in very simplistic terms. He thinks that the US should have a trade surplus with every other country and that if it has a deficit, that must be because those countries are engaging in unfair trade and should be punished accordingly. That is how he arrived at his tariff numbers.
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That wealthy people are able to exploit all manner of tax loopholes is well known. Most of these loopholes do not occur by accident but are inserted by lawmakers at the instigation of lobbyists. One of the most common areas for such loopholes is in real estate because there is so much ambiguity about valuations that can be fiddled with endlessly. Trump used those loopholes all the time and was found guilty of it in one case but escaped many others.

ProPublica writes about someone who specialized in these kinds of shady dealings many times who has now been made a senior adviser to the General Services Administration, which manages the federal government’s property, even though he pushed a scam that the IRS called the “Worst of the Worst”.
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