I really like your idea (you honestly don't know how much I like that sort of "it looks like a reguarly sized tank but its actually a mobile base and factory" thing) but I think the major issue is the fact they're so small. In a sci-fi RP I was in, there was a person with a race of basically alien fairies but she didn't make it too far due to reasons I will explain in this post.
With such a small race, you have something of a very unique if not slightly overpowered ability. You can basically spy on people and we'd never be able to see you or effectively catch you with luck or specialized equipment.
The spying is a huge advantage I had already thought about but I figured that people would accept it as a natural positive, I mean it isn't like other races aren't going to have effective spies. It being difficult to spy on me is true basically impossible for humans. But allot of real spies are discontent citizens who have been persuaded to betray there country I am susceptible to this just like everyone else. Some good potential spies being Princesses who are unhappy they are being overlooked as the next queen persuaded due to promises that the nation in question will support her ascension with military action. Corrupt politicians dissatisfied with the current regime who desire a change.
Same goes for war since the fairies are so small, only a direct hit from a bullet or some AoE/flame thrower would hope to hit any of them while your faeries can just dash across the field or through some tiny tunnel and just kill troops via death by a thousand cuts, by passing any need of tanks or ships since they can just either run, swim, fly or use tiny boats and it'd be much harder to hit.
The weapons a 4cm fairy can carry wouldn't be a threat to a human soldier in any kind of armour because they would lake the penetration power needed to get threw it they would have to specifically target eyes. Even then if we go in character no sane fairy would agree to attack a human armed with a fairy sized weapon. It be like trying to persuade human armed with rifles to attack Godzilla I'm quite certain most people would refuse.
I don't plan to power game the race by having them all get equipped with suicide bombs and fly at human soldiers with no regard for there own lives. There not fanatics willing to throw away there lives as living smart bombs. They are individuals they will throw down there lives for there country like any soldier would but ultimately they still want to survive and have aspirations they wish to achieve before dying.
Economically, you're also isolated since we haven't gotten to the point where very very delicate machinery is need for things like computers. But at the same time, what ever you can produce, we can't use since it would either be too small or you'd take too much time building each thing to the size we'd be able to use it due to your race's size.
Even if you had a bumper crop harvest, what ever you'd sell would be literally a plate's worth to everyone else.
We don't sell the completed items we mass produce the parts which other civilizations use in the production of there own machines, such as the small pistons used in engines, circuitry, used in televisions or radios, making computers also isn't out of the question the united states had primitive computers in the late 1930s. Which they used on submarines to calculate trajectory of torpedoes surely such things would be of value.
As for the food industry it is a massive industry in real life, why is it unbelievable for it to be profitable for my species we don't require as much food as humans so it stands to reason selling it is a good idea. Just like how selling renting out territorial waters makes sense since my species doesn't make use of fish as a resource.
I decided to go for this small island instead (if me being in the game doesn't cause people to leave) I think it is remote enough and is relatively small
