California was officially made a state in 1850, and in the first 150 years of its existence, there were 27 serious propositions to leave the United States. So what would happen if California seceded from America (the Union)? What’s happens if Calexit were to happen?
Before we get started, we want to point out two things. First is that a state leaving the Union would be an incredibly complex legal issue, and who knows what people and companies will do if a Caliexit happens. So to simplify the scenario, this is looking at what would happen if nothing changed in California. The only difference is that California is now its own separate country.
The second thing we want to mention is that we also believe that if California left the United States, the US government may put tariffs in place in retaliation, or they are following vows that they made when trying to threaten California into staying with the union.
10. Cost of Fruits, Vegetables, and Nuts
California is responsible for about 16.5 percent of all of America’s fruit, vegetable, and nut productions. They are the leading producer of 81 crops, this includes producing 99% of all the artichokes, grapes and raisins, kiwifruit, olives, peaches, and plums. They also produced 99% of walnuts, almonds, and pistachios. California is also the leading producer of such everyday staples as garlic, onions, carrots, avocados, and spinach.
If California were to leave the Union these fruits and vegetables would at least go up in cost, simply because shipping it will be more difficult. Instead of just crossing state lines, it will now all become international shipments. That could raise the prices of a lot of everyday food. And that’s without the tariffs. If you tack those on, then expect prices of fruits, vegetables, and nuts to skyrocket.
9. Wine Will Cost More
While there are wine vineyards found in every state, the majority of wine in the United States is produced in California. In fact, out of all the wine produced, 88.5 percent of it comes from California. Many of the grapes used for wine are grown in the world famous Napa Valley.
Of course, if California did leave the union, the rest of the states would be able to get California wine. However, there could be heavy tariffs on it. Since wine is produced in every state, the tariffs could be massive to encourage people to buy American wine and help that industry grow.
8. Loss of Major Companies
As we said in the introduction, this is just what would happen if the secession happened tomorrow and nothing changed. If a real secession did happen, it’s hard to tell which California-based businesses will stay in California, and which will relocate to another state. If nothing changed, the United States would lose major companies like Apple, Google, Facebook, Disney, and Cisco, which are five of the Forbes 15 most valuable brands. This will have an economic impact on the country, and the United States would lose some of its most innovative tech companies.
Another industry that is strongly linked to California is Hollywood. It’s tough to say what would happen if America lost the film industry because it’s already an international business. Actors, directors, screenwriters, and many other people involved in movies and TV come from all over the world. Shooting locations are also often done internationally. It’s amazing to see how many movies are made in Canada. One was Harold and Kumar Go to White Castle, which is crazy, because Canada doesn’t have any White Castles.
The global market can actually be more lucrative than the domestic market, too. So, Americans may see the price of movie tickets go up if there are tariffs, which might lead to more piracy, and less people going to the movies. But ultimately America would still get Hollywood movies, just like many other countries around the world do now.
However, if California did secede, America would lose a significant part of its culture. Movies are arguably America’s biggest and most defining cultural export. What most of the world knows about America comes from Hollywood. Losing that would mean that America would lose a significant piece of its national identity.
7. Dairy Prices Will Go Up
Something that will definitely go up in price across America should California secede is milk and dairy products. Since 1993, California has been the biggest producer of milk, butter, ice cream, nonfat dry milk, and whey protein concentrate. In terms of cheese production, California is second only to the Cheesehead nation itself, Wisconsin. That means if California left the Union, and milk had to be shipped in with tariffs, then many beloved dairy products would be more expensive.
6. Imported Goods Will Cost More
California’s location at the western edge of the country makes it an ideal place for an international port. In fact, 37 percent of all goods that come into the US enter the Port of Los Angeles, and is then transported across the country. The major trading partners of the Port are China, Hong Kong, Japan, South Korea, Taiwan, and Vietnam. That means a lot of clothing and electronics come in through California before going out to the rest of the country.
Although, in recent years, other ports throughout America have developed their coastline to accept more ships. Plus the Panama Canal is expected to open its expansion later this year, which will siphon off business from the Port of Los Angeles. Despite these changes, the Port of Los Angeles will still be the biggest port in the country.
This will leave America with two options. They could pay California to use the port, or they could get the imports themselves. However, this will take a huge investment in port infrastructure. Also, companies may have to make two stops. One in California, and one somewhere else in America. This will also raise the cost, because more travel time means more fuel and manpower.
5. The Cost of Water Will Go Up
Many of the entries on this list look at what America will lose out on if California leaves. That’s because California is a diverse state with many natural resources. However, there is one thing that California doesn’t have a lot of access to, and that’s water. California often has dry seasons, and when they have a drought, they take more water from the Colorado River. The Colorado River isn’t just a water source for California. It runs through six other states: Arizona, Wyoming, New Mexico, Utah, Nevada, and Colorado. Altogether, it provides water for 40 million people.
How the water from the Colorado River is dispersed was decided in 1922. The problem is that, in that year, the area, which is normally the driest in the country, was going through a wet period. What’s interesting is that states will take their amount, even if there isn’t enough water. Then California will take more, because they’re suffering from a drought.
If California were to leave the union, new water agreements over the Colorado River would have to be drawn up. This would mean a limitation on the amount of water that both California and the rest of the area will get. And that means water prices in the region will go up.
4. California Tourism Will Be Hurt
California is the most visited state in the United States. A lot of this is because of the diversity of the state. It has beautiful national parks, world renowned beaches, famous theme parks, and tourist attractions like the Golden Gate Bridge and Napa Valley. Then there are iconic cities like San Francisco and Los Angeles. Add in the fact that they often have great weather year round, and it’s understandable why millions of people visit there every year. In 2015, tourism alone brought in $122.5 billion and created over a million jobs.
While 78 percent of the tourism done by Americans is Californians visiting other parts of California, the other 22 percent came from other states. That number may plummet after the Caliexit for two reasons. The first is that it will be more difficult for Americans to get into California, because you’ll have to cross an international border. Chances are, you’ll need a passport and you couldn’t have a criminal record. The other reason tourism may take a beating in California is that Americans may be mad at California for leaving, and will boycott the former state.
3. Rise in Taxes
The rest of the states will probably miss California the most at tax time, because if a Caliexit were to happen, Americans will have to pay higher federal taxes. In the United States, not all states contribute equally. In fact, some states get more than they put in. This includes New Mexico, West Virginia, DC, and Hawaii. However, California is the biggest contributor to federal taxes, contributing 13.3 percent of all federal taxes collected. Now, imagine if you lost 13.3 percent of your income. Many of us would be scrambling. In the short term, taxes will have to go up to cover the costs. And yes, California does get some money back from the federal government, but they are one of the least dependent on the federal government. So California leaving America won’t save much; definitely not compared to what they put in.
Yes, tariffs will cover some of the costs, but not all of them. The first reason is that California may not trade in the same quantity, and may choose to find countries that have fewer tariffs. The second is that administrative costs of shipping between California and America will also rise, so those costs have to be accounted for.
Essentially, California wouldn’t be paying the same amount to the United States if they left the country, because then what would have been the point of leaving?
2. Devaluing of the American Dollar
America has a reliably strong dollar. In many cases, it’s used as a measuring stick for the world market. However, any time there’s instability in the country, like with talk of a secession, the dollar weakens. We saw this with the United Kingdom and the Brexit. Even during the lead up to the vote, the pound was shaky. Then after the vote, its value dropped to a 31-year low. Brexit was so bad for the economy that Britain dropped from the fifth to the sixth biggest economy. This also happened in 1995, when Quebec had a referendum to leave Canada. The value of their dollar, called the Loonie, dropped by 30 points.
However, what’s interesting about California leaving as opposed to the UK and Quebec, is that California is the biggest economy in the union and contributes the most to the federal budget. In Quebec, that’s Ontario in both cases. In the European Union, Germany is the biggest economy and Italy, Germany, and France all give more to the EU than the UK.
If the biggest economy, and the biggest contributor to federal taxes left, it may be more devastating to the American dollar than Brexit.
1. World Wide Recession
One reason why people from around the world care about the United States and what’s going on there is because they are one of the cornerstones of the world’s economy. The United States has the highest nominal GDP in the world, which is about a quarter of the world’s GDP. However, if the American dollar, which is considered the safest currency in the world, were to plummet, then the world’s economy is going to be dragged down along with it.
We already saw this in 2008 when the market crashed. It was the greatest financial crises since the Great Depression and it happened because of bad and ill-conceived subprime mortgages, which caused the housing market to collapse. This collapse had a domino effect on the world’s economy and GDPs around the world declined. With something as big as the state that contributes the most to federal taxes, and with the biggest GDP (and the sixth largest economy in the world on its own), then it could have even more profound effects on the world’s economy.