Why Washington’s policy quakes can’t disturb California’s economy beyond a point

This is not a partisan provocation, but a statement grounded in hard data and direct experience: We built the institutional architecture that has made the state resilient in the face of federal policy volatility.

As governor and as the former chief economic and business advisor who helped design California’s international investment strategy (an initiative now run by Dee Dee Myers), we undertook trade missions to Europe, Asia, Canada and Latin America; direct government-to-business outreach; and long-term investment compacts.

Now that strategy is paying off. Nearly 19,000 foreign-owned enterprises operate in California, supporting more than 814,000 jobs and paying an estimated $89 billion in wages to Californians—a figure that grew even as federal trade policy turned inward. The US Bureau of Economic Analysis confirms that California consistently ranks among the top two or three states on foreign direct investment.

To be sure, the headwinds President Donald Trump’s administration has created must be acknowledged. Tariffs raise input costs across supply chains and policy unpredictability suppresses long-term capital commitments that drive investment. No state, however large, is fully insulated from national macroeconomic conditions.

California’s 61,000-plus exporters face real exposure from retaliatory tariffs, as do the farmers and ranchers whose top export markets—Mexico, Canada and China—have been targeted by federal trade policy. But for the international firms that remain committed to the US market, the question is not whether to invest, but where.

Here, California offers something that Washington currently cannot: predictability. Clear emissions standards create demand certainty for clean-energy investment and well-established labour protections reduce long-term litigation risk. With its commitment to a green transition, California stands out for international makers of electric vehicles (EVs) and other supplies across the battery supply chain.

As an executive from UK-based Octopus Energy recently put it, California’s “supportive policy and world-class entrepreneurship” make it “an ideal place to back long-term investment partnerships.” That assessment accompanied a nearly $1 billion commitment to invest in California’s cleantech sector. Many other international investors have set up shop in California for the same reasons. Our clean-energy sector employs more than a half-million workers and is growing three times faster than the overall economy.

Three sectors illustrate California’s pattern of success most clearly. In cleantech and climate infrastructure, the state’s Advanced Clean Cars regulations, cap-and-trade system and nation-leading renewables standards create demand certainty for investors in solar, battery storage, hydrogen and EV infrastructure need.

Having added more than 30,000 megawatts of new clean energy and storage capacity since 2019, California now generates 67% of its electricity from clean sources and it is building toward 100% by 2045. Such an ambitious, yet achievable, target creates a durable investment runway that extends far beyond any single federal administration.

Likewise, in life sciences and biotech, California’s world-leading research universities, regulatory expertise and cluster effects in the Bay Area and San Diego continue to attract European and Asian pharma and medical-tech capital at record rates.

In AI and digital infrastructure, California’s venture ecosystem and strong lead in talent and compute capacity make it the default destination for international tech investment—a position re-inforced by federal ambivalence towards AI governance that has created a regulatory vacuum that California is beginning to fill.

These sectors and many others are attracting substantial capital for innovation and the scaling of companies that will define our future. Some business leaders are sceptical of California’s regulatory environment and they are not wrong to say that the cost of doing business in California remains high. Reforms of the permit process are in progress but incomplete, even as housing affordability constrains the labour market—a challenge that demands sustained attention.

But such problems are not solved overnight. Our Jobs First Economic Blueprint acknowledges the work that needs to be done. Meanwhile, foreign investors are making comparative judgements: The relevant question is not whether a jurisdiction is perfect, but whether it offers the best available combination of market scale, institutional stability, workforce quality and regulatory predictability for a given investment strategy. On that measure, for a widening range of investment categories, California’s advantages remain formidable.

Our investment framework was always intended to be durable across administrations and economic cycles. And now the international relationships, sector-specific compacts and regulatory certainty we have established are proving resilient in a turbulent national environment, vindicating our strategy. California’s experience holds lessons that extend well beyond our state.

In a global economy characterized by rising geopolitical friction and policy volatility, predictability and openness are competitive advantages. Jurisdictions that understand this will attract the capital, talent and partnerships that determine long-term prosperity. California did not wait for Washington. It drew its own conclusions, built its own institutions accordingly and is reaping the rewards. ©2025/Project Syndicate

The authors are, respectively, governor of California; and senior partner emeritus, McKinsey & Company, and former chief economic and business advisor to the state of California.