Nearing the conclusion of another year of change amid a decade of unprecedented shifts, Cal State Fullerton College of Business and Economics economists Anil Puri and Mira Farka provided an in-depth outlook for the global, U.S., California and Orange County economies at the 31st Annual Economic Forecast Conference on Oct. 30 in partnership with Orange County Business Council, an event attended by business professionals, policymakers, academics and students.
Analyzing the on-again off-again trade war flair-ups in the first year of the second Trump administration, Puri and Farka argued that the trade tensions with China, the world’s second-largest economy, should have been anticipated and is an economic equivalent to mutually assured destruction reminiscent of the height of the midcentury Cold War.
“The current standoff was inevitable. It’s hardly surprising that the world’s two dominant powers would jockey for maximum leverage ahead of high-stakes negotiations. In fact, the real surprise is why it took so long,” the economists noted. “[China] could tip the U.S. economy, and with it, the global economy, into recession: rare-earth minerals are essential to the production of magnets used in nearly everything — from semiconductors and electric vehicles to fighter jets — the very lifeblood of the high-tech economy and, arguably, modern civilization. But the U.S. arsenal is hardly empty. Should it decide to apply maximal pressure — say, by effectively cutting off trade with China or imposing outright bans on advanced chips and aircraft parts — it would deliver a crippling blow to China’s economy…both sides know the stakes: mutually assured destruction.”
On the other hand, Puri and Farka noted a surprising calm in relations with the other major trading partners of the U.S., despite high but lower than threatened tariff rates. No countries other than China have truly retaliated, so the much-feared trade war never took off. Canada placed some retaliatory tariffs, which it is quietly walking back. Brazil and India are the only other two countries that have pushed back, but even their resistance has come more in the form of a recalcitrant defiance to submit rather than a full-on retaliation. Trade relations with our North American neighbors, Canada and Mexico, have yet to be fully clarified, in part because the major agreement, the USCMA, is up for renewal next year and the Trump administration is expected to push for a united North American front against China. Nonetheless, trade within the bloc has not suffered a fatal blow.
Snagflation Defines the Domestic Economy in the U.S.
In the U.S., Puri and Farka pointed to stagflation – a mix of stagnant economic conditions and inflation – as the main visible consequence of the trade war. But conditions are less worrisome than many predicted in spring.
“Inflation has edged up, though less than initially feared, while the labor market has slipped to stall speed. This is not the making of a classical stagflation. Rather, it is a weaker strain—call it snagflation—where inflation creeps higher and the economy stumbles into a soft patch, a hiccup, a snag, if you will,” Puri and Farka reported.
In a decade in which economics has often defied the conventional wisdom, the 2025 economic performance has been yet another. Consumer confidence has plunged, but gross domestic product (GDP) and the stock market are both up. The labor market, which has staged a spectacular recovery since the end of the pandemic, is starting to show signs of strain, with precipitous drops in job openings and longer waits for employment among the jobless.
While avoiding a downbeat outlook, Puri and Farka are cautious and expect some turbulence ahead. “While we expect growth to hold up, we wouldn’t be surprised if the remainder of the year is marked by a few more bumps, with payrolls weakening further as firms await clarity on trade deals, the government shutdown, and overall consumer demand,” they predicted. “Inflation, by contrast, will likely continue to edge higher into the first quarter of next year, though we do not expect it to get out of hand, anticipating a peak of around 3.5%. In other words, inflation has yet to crest, and the labor market has yet to find its floor—though neither is expected to inflict as much pain as once feared.”
Upper-Class Good Times Belie Difficulties for the Average American
The biggest concern for Puri and Farka: the post-COVID expansion tends to benefit more the upper income levels of the job market, rather than lower- and middle-class America, noting that the top 20% of income earners account for nearly two-thirds of consumption, up from 54% as recently as 2019. The top 10% alone generate about half of total spending, compared with 38% pre-pandemic. The top 1% comprise 38% of wealth.
“The U.S. economy has always been lopsided, with top earners accounting for a disproportionate share of spending and wealth—but rarely to this degree,” they noted. “The levee, it seems, is indeed running dry for the vast majority of American consumers—leaving this expansion resting uncomfortably on an ever-narrowing base, which makes it precariously fragile and acutely vulnerable to the next shock that comes along.”
Times Are Tougher in the Golden State
The challenges the U.S. economy faces are somewhat different than the unique situation in California, where the recent departure of several large corporate headquarters, including Tesla, Chevron and McKesson, underscore concerns about the cost of doing business in the Golden State, as well as the unusually high regulatory burden compared to the U.S. as a whole.
Despite improvements in renewable energy, California still has one of the nation’s highest fuel costs. Upcoming refinery closures threaten to exacerbate this challenge. At the same time, many of the state’s efforts toward carbon neutrality – for instance, the mandate that all new vehicles sold in the state be electric by 2035 – have been put on hold by the federal government.
Rising home insurance premiums in the wake of recent wildfires, challenges to the state’s model of providing affordable health care for all, a very anemic recovery in the job market from the COVID doldrums, and the continuing high cost of housing and attendant homelessness concerns are among the additional factors challenging the California Dream. Some of these are self-inflicted, such as lack of housing, high energy costs and extensive regulations, and some are caused by the current administration’s policy priorities, such as cuts to Medicaid and SNAP and deportations.
“The state’s problems are not isolated incidents, they are deeply interconnected,” said Puri and Farka.” This nexus spans climate change, wildfires, high insurance costs, elevated oil prices, constrained energy supplies, and strict environmental regulations.”
Each quarter, the Woods Center for Economic Analysis and Forecasting conducts a survey of Orange County business executives, to gauge sentiment that can be a bellwether of future economic shifts. The fourth quarter 2025 survey shows a level of 74.4, with any reading above 50 signaling expectations of future growth. This reading is the highest since early 2024. Inflation remains the top concern in the poll, followed by interest rates. Other worries include uncertainty about federal government changes, government cutbacks, California taxes and challenges in hiring qualified talent. Most executives (59%) expected inflation to be impacted by tariffs at least modestly, while most respondents (59%) did not anticipate a noticeable impact from deportations.
For More on the Woods Center
Each year, the Woods Center for Economic Analysis and Forecasting releases two comprehensive forecasts on the global, national and local economies: one in spring and another in fall. The center also conducts periodic surveys and interim reports on economic conditions. For more on economic forecasts at Cal State Fullerton, read more of our articles on the Woods Center. The full 2025 report may also be read online.
