The US state of California is now the fourth largest economic force in the world, with its economy surpassing that of Japan. Governor Gavin Newsom emphasized fresh data showing California’s economic expansion from the US Bureau of Economic Analysis and the International Monetary Fund (IMF). According to the data, Japan’s GDP of $4.01 trillion was surpassed by California’s $4.10 trillion (£3.08 trillion) in 2024. The state today lags behind just China, Germany, and the United States overall. “California isn’t just keeping pace with the world – we’re setting the pace,” Newsom said. These numbers coincide with Newsom’s criticism of President Donald Trump’s tariffs and his expressed worries about the state’s economic prospects.
California currently produces more agricultural and manufacturing goods than any other state in the union. It is also home to the two biggest seaports in the nation, the epicenter of the global entertainment industry, and a center for technical innovation. In a lawsuit, Newsom, a well-known Democrat and possible 2028 presidential candidate, contested Trump’s right to apply the tariffs, which have caused disruptions to international trade and markets.
Trump has placed a 25% tariff on Canada and Mexico and implemented 10% tariffs on nearly all nations that import to the US. However, the US has imposed import taxes of up to 145% on Chinese goods, and China has responded with a levy of 125% on American goods, sparking a trade war.
Newsom expressed his worries about the future of the state’s economy, stating, “While we celebrate this success, we recognize that our progress is threatened by the reckless tariff policies of the current federal administration. California’s economy powers the nation, and it must be protected.” Trump has defended his trade war, arguing it is leveling the playing field after years of the US being unfairly taxed. The tariffs are intended to encourage factories and jobs to return to the US, a major pillar of his economic agenda, along with interest rate cuts aimed at reducing borrowing costs for Americans.
The new data shows California’s GDP behind the US at $29.18 trillion, China at $18.74 trillion, and Germany at $4.65 trillion. California was also the fastest-growing among these economies. Japan’s economy is facing pressure due to its decreasing and ageing population, which has resulted in a shrinking workforce and increasing social care costs. The IMF recently cut its economic growth forecast for Japan and projected a slower pace of interest rate hikes by the central bank due to the impact of higher tariffs.
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Comparing Economic Trends of Japan and California Over the Recent 5 Years (2020-2025)
Comparing the economic performance of Japan and California using available data and projections, Japan has experienced some significant GDP fluctuations. In 2029, Japan’s GDP stood at $5.118 trillion. However, in 2020, it moved to $5.056 trillion, representing a 1.22% decline. In 2021, the GDP moved to $5.035 trillion, representing a 0.41% decline. In 2022, the GDP moved to $4.256 trillion, representing a 15.46% decline, with the trend repeating itself.
The GDP growth rate for Japan has also experienced relatively slow growth rate over the years and is currently projected to be 1.5% thought it started at -4.15% in 2020.
- Key Challenges: Japan faces ongoing challenges including an aging and declining population, which has been shrinking since 2010 and stood at 122.6 million in 2024. This demographic trend impacts the labor force, with the working-age population at its lowest among OECD countries (around 59.4% in 2022). The country also has a very high public debt, approximately 260% of GDP as of 2021.
- Strengths: Japan has a highly developed and diversified mixed economy with a strong focus on high technology, motor vehicles, and electronics. The service sector contributes significantly to the GDP (around 70%), with the industrial sector making up most of the remainder. Japan is recognized for its innovation and high number of patent filings.
- Recent Developments: There have been adjustments to monetary policy settings amidst rising inflation. Fiscal consolidation to address high public debt is also a key focus.
California’s economy on the other hand has experienced a relatively stronger growth rate over the recent years. In 2024, the state recorded a nominal GDP of $4.1 trillion, surpassing Japan to become the world’s fourth-largest economy. For the same year, California recorded a 6% growth rate, outpacing the US (5.3%), China (2.6%), and Germany (2.9%). The average nominal GDP growth for California from 2021 to 2024 was 7.5%
- Key Drivers: The strong economic performance is attributed to factors such as a growing population, record tourism spending, and leadership in key sectors like technology, manufacturing, and agriculture. California is the top state for new business starts and venture capital funding.
- Sectoral Strengths:
- Technology: A cornerstone of California’s economy, contributing significantly to the Gross Regional Product and state tax revenue.
- Manufacturing: Remains the largest contributor in the US in both employment and output, with high-tech subsectors driving productivity.
- Agriculture: A leading agricultural producer in the US.
- Services: Strong growth in professional services and information technology sectors.
- Challenges: Despite strong growth, California faces challenges including a significant budget deficit and reliance on volatile revenue sources like personal income taxes and capital gains. The unemployment rate has seen a recent increase, reaching 5.4% in January 2025, the second highest in the nation. High housing and living costs contribute to a significant number of working individuals experiencing poverty.
- Recent Developments: The state has seen a rebound in population growth after several years of stagnation. Policies affecting labor costs, such as increases in the minimum wage, are being monitored for their impact on employment.
Over the recent five years, California has demonstrated significantly stronger economic growth compared to Japan. California’s nominal GDP has increased substantially, allowing it to overtake Japan as the world’s fourth-largest economy. This growth has been fueled by its thriving technology sector, robust manufacturing, and strong performance in other key industries.
Conversely, Japan’s economy has faced headwinds, with a general decline in nominal GDP over the period. The country grapples with long-term structural issues such as a declining population and high public debt, which continue to pose challenges to its economic growth prospects. While both economies are highly developed, their recent trajectories have diverged, with California exhibiting more dynamic expansion in the period under review.
