Trump has promised an immigration crackdown if reelected. That could backfire on the economy

New York CNN — If voters return former President Donald Trump to the White House, he’s promised to launch an unprecedented crackdown on immigration and even conduct mass deportations. Trump recently told Time that he would aim to deport 15 million to 20 million people, perhaps by using the National Guard. Some economists worry that Trump’s proposed immigration crackdown — if it survived legal challenges — would backfire on the US economy by worsening worker shortages, reigniting inflation and forcing the Federal Reserve to keep borrowing costs high for even longer. “If he follows through in deporting a significant amount of immigrants, that’s going to be very difficult for businesses,” Mark Zandi, chief economist at Moody’s, told CNN. “It’s going to cause them to raise wages and prices.” Joe Brusuelas, chief economist at RSM, said the problem is that the supply of native-born workers simply cannot meet demand. “We need to import workers,” Brusuelas said. “If either party oversteps in reducing the flow of workers, it’s likely we would face a serious shortage of workers and a renewed bout of inflation. You would drive the unemployment rate down to 3% and wages would pop. You’d get classic inflation.” And that would have serious implications for the Fed, which has already warned that interest rates will need to stay high for longer than anticipated to fight stubborn inflation. “In that case, higher for longer has a much different meaning,” said Brusuelas. In a statement to CNN, Trump campaign spokesperson Karoline Leavitt argued, without evidence, that President Joe Biden “allowed” undocumented immigrants to “invade our border” and that if he’s reelected they will be allowed to stay. “Medicare, Social Security, the healthcare system, public safety and American democracy itself will buckle and collapse,” Leavitt said. “When President Trump is back in the White House, he will deport the millions of illegal immigrants Joe Biden let in and reimplement his America First, pro-growth, pro-job agenda to uplift all Americans.” ‘It’s a rip-off’ Inflation remains a major concern for Americans. Even though consumer prices are no longer skyrocketing, the cumulative impact of three years of high inflation is painful. Americans are paying much more for housing, food and car insurance than they were before Covid-19. Frustrations with the high cost of living helped drive down consumer sentiment to a six-month low, the University of Michigan survey of consumers found on Friday. “Most Americans view high inflation and high prices as unfair. It’s a rip-off. How is it possible I’m paying more for something – a lot more for something – today than three years ago?” said Zandi. Anger over inflation could help return Trump to the White House. And yet, ironically, economists warn that his immigration plan – and his vow to impose massive tariffs on China and other nations – could worsen that same inflation problem. “My sense is President Trump’s policies are inflationary,” said Zandi. “It’s higher tariffs, it’s more deportations. … I think these things are going to lead to higher prices for American consumers.” Some businesses continue to face a shortage of workers. Although the number of job openings has tumbled in recent months, it remains well above pre-pandemic levels, according to the Labor Department. Migrant crisis Of course, it’s hard to know whether Trump would carry through on his immigration proposals. After all, he promised mass deportations in 2016, too. And Trump’s immigration plans would surely face serious legal challenges. But immigration remains a major concern for voters in the 2024 election and Trump has made it a centerpiece of his campaign. The spike in immigration over the last several years has caused a severe strain on resources in some cities and states as officials scramble to house, educate and feed asylum seekers. And the flow of migrants, along with a series of high-profile criminal cases involving migrants, have contributed to concerns about crime — though criminologists are skeptical about the connection. Even the Biden administration has tried to take a tougher position on immigration. Last week, US officials proposed a rule that would let immigration authorities rapidly reject migrants who are ineligible for asylum. A positive supply shock Yet economists say the immigration spike has also played a major role in one of the big positive surprises of the past few years: America’s ability to defy recession forecasts. To the shock of many forecasters, the post-Covid labor market has not run out of workers. Jobs growth continues at a pace few thought possible. And the unemployment rate has stayed under 4% for 27 months in a row, matching the record streak from 1967 to 1970. Economists say the recent spike in immigration helped make these surprises possible, by preventing the jobs market from totally overheating and the Fed from overdoing rate hikes. “It helped to ease the very tight labor market, bring in some of those wage pressures and reduce inflation,” said Zandi. “It also allowed the economy to grow more quickly.” Prior to Covid-19, population and labor force projections from the federal government suggested the US economy would only be able to sustainably add (without worsening inflation) between 60,000 and 140,000 jobs per month and then between 60,000 and 100,000 per month by 2024, according to research from The Hamilton Project. In reality, the US economy added an average of 255,000 jobs per month in 2023 — two to four times the pace considered sustainable, research notes. “Just in the last year, a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era,” Fed Chairman Jerome Powell told “60 Minutes” in February. Net immigration of 2.3 million in 2023 The Hamilton Project paper estimates sustainable employment growth will be between 160,000 and 200,000 per month in 2024 — about double what would have been possible before the immigration surge. Without that influx of workers, the US economy could have faced a different fate. “The Fed would have likely overdone it with rates and tipped the economy into recession,” said Brusuelas, the RSM economist. Immigration collapsed when the Covid-19 pandemic began in early 2020, contributing to the historic shortage of workers that drove up wages. But then immigration rebounded massively in 2022 and 2023, in part because of a surge of migrants. US authorities had more than 2.5 million encounters with migrants crossing the US-Mexico border last year alone, according to Homeland Security estimates. In 2023, the United States experienced net immigration of about 3.3 million, according to the Congressional Budget Office. That well exceeds the average of just 900,000 that was typical between 2010 and 2019. The immigration spike has been so significant that the CBO estimates the United States is on track to have 1.7 million more people in its pool of workers this year compared with what was expected last year. Goldman Sachs economists estimate that the immigration surge eased wage growth by 0.3 percentage points at the national level and by at least twice as much in the low-paying leisure and hospitality sector. Although the “textbook answer” is that immigration should not matter much for wages and inflation, Goldman Sachs economists recently told clients: “We think this time was a bit different.” “The main reasons are that the immigration turnaround was very large and that it occurred at a time when the labor market was historically overheated,” Goldman Sachs economists wrote. What happens next Looking ahead, Goldman Sachs said “moderate fluctuations” in immigration will probably have “little impact” on wage growth and inflation. The exception, the bank said, would be in the event of “dramatic policy changes.” Wendy Edelberg, director of The Hamilton Project and senior fellow of economic studies at the Brookings Institution, told CNN she is “confident” an immigration crackdown like the one Trump proposes would have “negative” effects on the economy. However, Edelberg is less concerned about the inflationary impact and more worried about a crash in demand — especially in communities that have experienced a large influx of immigrants. She noted that some businesses have enjoyed a sharp increase in demand in recent years in large part because of immigrants. “That’s the kind of thing that could spark a recession,” Edelberg said. “I don’t mean to suggest this would be a cataclysmic recession, but this would be a very abrupt reduction in aggregate demand. Generally, that’s not the kind of thing that our economy likes.” For more information, viist us at https://www.beverlyhillsimmigrationlaw.com/.