Trump's Tariffs Are Already Rattling California's Tech Sector

SAN FRANCISCO — California’s budget experts are in a tizzy after President Donald Trump’s tariffs shoved tech stocks downhill this week, fearing what it could mean for the state’s bottom line.

A strong showing from tech companies helped fill the state’s coffers last year, helping to balance the budget and even creating a modest surplus this year. Gov. Gavin Newsom has taken notice, praising chipmaker Nvidia in his State of the State address last year for nurturing the state’s valuable startup ecosystem.

If the tariffs continue to rock the tech world, Democratic lawmakers worry this could ultimately eat into the Golden State’s financial cushion.

“Yes, it could absolutely harm California's budget,” state Senate Budget Chair Scott Wiener told POLITICO's California Decoded newsletter. ”Trump and [Elon] Musk are basically trying to collapse the economy.”

Spooked tech stocks this week are “further evidence that President Trump’s tariffs are ultimately self-defeating,” said Jesse Gabriel, chair of the Assembly Budget Committee. “Members of both parties should be concerned that they will harm our economy, our state budget, and California businesses and residents.”

Tech stocks have tumbled more than 7 percent since Trump took office in January, CNBC reported yesterday, with his announcement of new tariffs on Mexico and Canada this week triggering a sudden dip that saw Nvidia shares fall 9 percent Monday.

Economists said the jagged lines showing up on Big Tech stock charts in the wake of tariffs won’t rock their highly profitable boats yet, but even small dips in cash flow from the state’s golden goose industry can give budget wonks reason to break out in a cold sweat.

Tariffs on Chinese goods like manufactured parts and chips “are going to make the production process more complicated and more expensive,” said economist Christopher Thornberg with Beacon Economics.

Thornberg said California companies that rely on those materials like Apple and Nvidia, which makes highly sought-after chips essential for training AI programs, will be able to absorb the costs “because of the mountain of profits they are sitting on.”

The longer the trade spat goes on, though, the more likely knock-on effects like higher consumer prices, but also bites out of the budget, become as companies absorb increased costs.

“You don't have to be a Warren Buffett to figure this out. Markets do not like uncertainty, and that is something that, at least in the near term, we're seeing quite a bit of,” state Finance Department spokesperson H. D. Palmer told California Decoded.

Still, these are also just the opening shots in a trade war from an administration that has been willing to quickly reverse course without warning. So keep in mind it’s not certain exactly what, if any, fiscal impact Washington’s economic policy will have on the budget of the world's fifth largest economy: The Trump administration already just announced today it has decided to delay a portion of the 25 percent tariffs at the request of automakers.

“I don’t have a straight line ability to predict ‘Aha!’ here’s what it’s going to do to the California budget,” said John Villasenor, a professor at the UCLA Institute for Technology, Law and Policy. “It depends in large measure how long these tariffs stay in place for.”

What is certain is the state’s budget is highly reliant on revenues from some of the most profitable tech companies in the state, and the world, to stay afloat. California’s budget was expected to be “roughly balanced” in the 2025-2026 fiscal year thanks in part to a bull run in the stock market last year for Big Tech, according to a report for the Legislative Analyst’s Office.

That report found that in the first half of last year, “stock pay alone at four major technology companies accounted for almost 10 percent of the state’s total income tax withholding.” The report’s authors did not name specific companies, but Santa Clara-based Nvidia grew by nearly 200 percent last year thanks to frenzied demand for its chips from the AI industry that made it one of the most valuable companies in the world.

None of this was unexpected, with the budget gurus at California’s Department of Finance warning in a January report that California’s coffers were “especially vulnerable” if the Trump administration pursued “highly inflationary” tariffs.

Palmer said the state’s full financial picture won’t be clear until the Finance Department releases its next comprehensive budget report in May.

Until then, he suggested taking a word of advice from the fortune cookie he got at New World Bakery in Sacramento yesterday: “Don’t worry about the stock market. Invest in family.”

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