Will Trump's immigration policy backfire?

Source: Barron's Chinese

Economists believe that the mass deportation plan will bring a "supply shock", increase price pressures, and make the employment situation of ordinary Americans worse.

Trump promised to lower prices during his campaign, and if his two main policy proposals are implemented, they may actually have the opposite effect.

Trump's proposed tariff policy has been seen as pushing up prices, and economists warn that his second signature policy - a plan to deport millions of illegal immigrants from the United States - may also push up prices.

Economists believe that the large-scale immigration deportation plan will disrupt industries that rely on immigrant labor, including agriculture and construction, causing problems such as worker shortages and slowed production, and ultimately making food, housing and other goods more expensive.

"Tariffs are not a real threat," Neil Shearing, chief economist at Capital Economics, wrote in a report on Monday (November 18). "Other countries and regions will pay attention to the impact of Trump's trade policy in his second term. What will really hit the U.S. economy is Trump's stance on immigration."

What impact will Trump's large-scale immigration deportation plan have on the U.S. economy?

Trump has previously said that he will deport millions of illegal immigrants living across the United States under the Alien Enemies Act passed in 1798.

Trump said his plan would involve up to 15 million or 20 million people, but according to the Center for Migration Studies, there are only about 12 million illegal immigrants in the United States as of July 2023.

The highest number of deportations in a single year was about 430,000 in 2013 during Obama's administration.

Unauthorized immigrants make up just under 5% of the U.S. workforce, but if they were deported, many other workers would be affected, too, according to studies.

Chloe East, an economist at the University of Colorado Denver, has studied the impact of deportations under the Obama and George W. Bush administrations on the U.S. labor market. Her research found that for every 500,000 illegal immigrants removed from the labor market, there are 40,000 fewer American jobs.

That’s because when illegal immigrants are excluded from the labor market, it’s harder for U.S. employers to fill low-wage, less attractive jobs in industries like construction, agriculture, hospitality and child care, which reduces demand for other types of jobs, East said.

“Massive deportations will make the job situation for the average American worse,” East said.

Some proponents of reducing immigration have pushed back on the idea that employers will have trouble finding American workers to fill low-wage jobs that are typically held by foreign workers, but East noted that in her research, “we really don’t see any evidence that employers are able to attract U.S.-born workers to fill those positions.”

A wave of new immigrants has boosted job growth in the U.S. over the past year, keeping the job market strong at a time when high interest rates threaten to slow hiring and push up unemployment.

“Without these immigrants, the U.S. job market wouldn’t have grown the way it has,” said Madeline Zavodny, an economist at the University of North Florida who studies economic issues related to immigration.

Zavodny noted that the influx of immigrants — both legal and illegal — has eased labor shortages in the U.S. in recent years and prevented further price increases. “Without these immigrants, there would have been more upward pressure on prices,” she said.

What are the potential benefits of mass deportations?

Some policy experts argue that the vacancies left by mass deportations will go to Americans who need jobs — including working-age men without college degrees, whose labor force participation has been falling for decades.

"Employers will have to raise wages and change their hiring practices in the hope that more of these men will find jobs," said Steven Camarota, research director at the Center for Immigration Studies, an anti-immigration think tank.

In addition, Camarota does not believe that mass deportations will seriously disrupt the United States' huge labor market.

"There are 168 million working people in the United States. I don't think it will have much impact to let millions of illegal immigrants leave. There are always people coming and going in the labor market."

Will Trump's mass deportation plan lead to higher prices?

However, a growing number of economists have issued contrary warnings, arguing that Trump's immigration plan is extremely destructive and will further increase the prices of consumer staples that have already put pressure on many Americans.

If industries such as agriculture and construction lose too many workers, farms and home builders will have difficulty maintaining production. Some affected industries, including agriculture and child care, are already dealing with labor shortages.  

The loss of labor could push up prices for goods such as groceries, housing and daycare, East said, and food prices would rise if there were a large number of agricultural and construction workers, as would housing prices.

A September paper from the Peterson Institute for International Economics noted that mass deportations "would trigger a classic supply shock, with higher prices and lower output."

Some experts believe these industries may not be affected much. Adam Speck, an agricultural economist at the data analytics firm Croptell, doesn't think labor shortages are one of the biggest risks facing Trump's new administration.

In agriculture, the H-2A visa program allows farmers to temporarily hire foreign workers, and Speck noted that expanding the program could offset the impact of the immigration deportation plan.

"Trump knows he needs to have a good relationship with farmers," Speck said.

The impact of Trump's immigration agenda will depend on how effectively the administration implements his plan.

Trump has promised to launch a deportation program on his first day in office, but the current immigration enforcement system is not equipped to conduct such a large-scale operation and it would cost hundreds of billions of dollars to do so, according to an analysis by the American Immigration Council, a nonprofit advocacy group that opposes mass deportations.

On Monday, Trump said in a post on Truth Social that he would declare a state of emergency and use the U.S. military to conduct deportations.

If Trump did so, his immigration policy would be the largest of its kind in decades, but Zavoni said it would do nothing to help Trump deliver on his promise to lower prices.

“Kicking out a bunch of immigrants is not going to lower prices, and I wish more people understood that,” she said.