California Surpasses Japan to Become World’s Fourth-Largest Economy

California Surpasses Japan to Become World’s Fourth-Largest Economy

California has officially overtaken Japan as the world's fourth-largest economy, marking a significant milestone for the U.S. state. According to the latest data from the International Monetary Fund (IMF) and the U.S. Bureau of Economic Analysis, California’s gross domestic product (GDP) reached $4.10 trillion (£3.08 trillion) in 2024, edging past Japan’s $4.01 trillion.

Governor Gavin Newsom celebrated the achievement, highlighting California's dynamic and resilient economy. “California isn’t just keeping pace with the world – we’re setting the pace,” he stated. The announcement comes at a time when Newsom has been vocally critical of federal trade policies under former President Donald Trump, warning they pose a threat to the state’s economic future.

California has long been an economic powerhouse within the U.S., boasting the nation’s largest share of manufacturing and agricultural output. It is also home to major global hubs of innovation, including Silicon Valley, the epicenter of technological advancement; Hollywood, the heart of the entertainment industry; and the two largest seaports in the United States, key for international trade.

In the wake of the new economic rankings, Newsom emphasized the importance of shielding California's growth from what he calls “reckless” federal tariff policies. He has taken legal action against Trump's administration, challenging the former president’s authority to impose trade levies that have disrupted global markets.

Under Trump’s trade agenda, sweeping tariffs have been imposed on a wide range of imports. A 10% levy was introduced on goods from nearly all countries exporting to the U.S., alongside an additional 25% tariff targeting Mexico and Canada. The most significant impact has been felt in the trade relationship with China, which has escalated into a full-blown trade war. Trump’s administration enacted tariffs of up to 145% on Chinese imports, prompting China to retaliate with tariffs of 125% on American goods.

The U.S. government recently confirmed that when combined with existing duties, total levies on some Chinese imports could soar as high as 245%. While Trump argues that these measures are necessary to protect American industry and bring back jobs, critics like Newsom argue they are harmful to economic progress, particularly in globally connected states like California.

“While we celebrate this success, we recognise that our progress is threatened by the reckless tariff policies of the current federal administration,” Newsom said. “California’s economy powers the nation, and it must be protected.”

The newly released GDP figures place California behind only the United States as a whole ($29.18 trillion), China ($18.74 trillion), and Germany ($4.65 trillion). Notably, California also posted the fastest economic growth among these leading economies.

Japan, once the world’s second-largest economy, continues to face significant challenges. A declining and aging population is placing pressure on its labor force and increasing the burden on social services. The IMF recently downgraded Japan’s economic outlook, noting that high tariffs and broader uncertainty are dampening the expected boost from rising wages and household consumption.

According to the IMF’s World Economic Outlook, these factors are likely to slow the pace of interest rate hikes by Japan’s central bank, further complicating the country’s recovery trajectory.