[@Gig]

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. 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.

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.

I guess one idea would be to have two races that have a symbiotic relation with each other so you can have hobbit/humanish size people and a tiny fairy race supporting them? Have very good tech but that's also extremely delicate so that faeries are useful since they can work the delicate stuff much better? Something of an ancient bonding tradition of a hobbit and a faery companion like Link and that annoying ass blue flying lamp? Just some ideas.