California’s small businesses can’t afford Europe’s rules

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OPINION – California is home to more than four million small businesses, many of them Latino-owned and family-run, that form the backbone of our state’s economy. These businesses power our communities, create jobs, and help generations of entrepreneurs achieve the American Dream. Today, that progress is at risk from a sweeping European regulation with serious consequences for California. The European Union’s Corporate Sustainability Due Diligence Directive, known as CS3D.

While CS3D is an EU law, its reach extends far beyond Europe’s borders. Because it applies to companies with global operations and supply chains, it effectively imposes European regulatory standards on American businesses, even for activity that takes place entirely in the United States. This kind of extraterritorial regulation should concern anyone who cares about economic growth, fairness, and democratic accountability.

According to analysis from the Hudson Institute, even after the EU revised CS3D in December 2025, the regulation will still impose costs approaching one trillion dollars on the U.S. economy. Those costs will ripple through supply chains, distort markets, and ultimately be borne by American workers, consumers, and small businesses that had no voice in the creation of this policy.

For California, the consequences are especially severe. Hudson Institute research shows that complying with CS3D would impose nearly $92 billion in one-time costs on California businesses, while putting more than $1 trillion in state revenue at risk. Implementation could eliminate more than 88,500 California jobs and drive over $14 billion in lost wages for workers across the state.

Small businesses are particularly vulnerable. More than 835,000 California small businesses operate in sectors most exposed to CS3D, including agriculture, manufacturing, energy, technology, and finance. Unlike multinational corporations with large compliance teams, small and mid-sized businesses lack the resources to navigate complex foreign regulatory regimes. For many Latino-owned businesses, which already face higher barriers to capital and thinner margins, CS3D compliance would simply not be financially viable.

California’s technology sector, a major engine of innovation and opportunity, would also be hit hard. The analysis projects $28 billion in one-time compliance costs for California’s IT and tech industry, with recurring annual costs ranging from hundreds of millions to billions of dollars.

Equally troubling is what CS3D means for American sovereignty. The regulation allows foreign authorities to dictate how U.S. companies operate on American soil, without approval from Congress and without accountability to American voters. That sets a dangerous precedent for future international overreach.

Fortunately, Congress has a clear path forward. Senator Bill Hagerty’s PROTECT USA Act would shield American companies from the extraterritorial reach of foreign due diligence mandates like CS3D. The legislation reaffirms a basic principle: U.S. businesses should be governed by U.S. laws, enacted by representatives accountable to the American people.

Supporting the PROTECT USA Act is not about rejecting sustainability or responsible business practices. California’s Hispanic business community understands the importance of ethical supply chains and environmental stewardship. But those goals must be pursued through transparent, democratic, and economically realistic policies, not imposed unilaterally by foreign governments at enormous cost.

California’s economy is already under pressure from high costs, regulatory complexity, and global uncertainty. Allowing CS3D to take effect here would compound those challenges and disproportionately harm small, minority-owned businesses and working families across the state who depend on local employers for opportunity.

Our lawmakers should stand up for California workers, entrepreneurs, and families by supporting the PROTECT USA Act and defending American sovereignty while protecting small businesses, jobs, and long-term economic competitiveness for future generations. Congress must act now to protect California’s economic future and prosperity.

Julian Cañete is the President and CEO of the California Hispanic Chambers of Commerce.