Tariffs, rising production costs, household debt and the rapid expansion of artificial intelligence are creating economic challenges for California businesses and consumers, according to a POLITICO discussion this week on affordability and the economy.

Tariffs on materials such as copper and lumber can increase construction and manufacturing costs, making it more expensive for businesses to build, expand and maintain operations. Efforts to increase domestic manufacturing may also face tension between supporting American production and keeping the cost of raw materials and other inputs manageable.

California agriculture faces similar pressures. Farmers must manage higher fuel and transportation costs, water constraints and uncertainty in global markets. The discussion also highlighted how market concentration can limit farmers’ bargaining power when dealing with large suppliers and buyers, leaving producers with less flexibility to absorb rising costs.

Artificial intelligence presents both economic opportunities and new infrastructure challenges. The expansion of AI data centers is increasing demand for electricity, copper, construction materials and skilled workers. The scale of investment may also affect borrowing costs, adding pressure to businesses financing projects and households seeking mortgages. California policymakers have begun addressing data-center electricity and water use, infrastructure costs and protections for utility ratepayers.

Meanwhile, rising credit card balances and household debt reflect the financial strain many consumers face despite continued economic growth. The discussion described a K-shaped economy in which households benefiting from rising asset values may be doing well, while others struggle with everyday expenses and borrowing costs.

For California, the challenge is balancing economic growth and technological investment with the need to keep energy, materials and operating costs manageable for manufacturers, agricultural producers, businesses and families.