In 2024, a major concern amongst voters in both Europe and the
United States was immigration. According to a Gallup survey,
2024 was the first year since 2005 that a majority of
Americans wanted there to be less immigration, and the
percentage opposing immigration hit the highest level since
2001. The US is home to the world's
largest foreign born population, where, according to the Census
Bureau, immigrants make up 14.3% of the population.
As of 2022. Mexicans made-up 23% of the
total immigrant population, Indians made-up 6%, Chinese 5%,
and Filipinos 4%. The majority of these people are
legally in the country, but experts estimate that there are
between 11 million and 13 million illegal immigrants in
the United States, and between 8 and 10 million illegal
immigrants work in the country, which is as much as 6 percent of
the entire US workforce. Nearly half of the illegal
immigrants live in four states, California, Florida, New York
and Texas, with many working in agriculture, in the service
sector and in construction. Immigration has been a signature
issue for Donald Trump, who's advocated for slashing both
legal and illegal immigration. Trump famously vowed to build a
wall along the US Mexico border to stop drugs and gangs from
getting into the country. He was unable to get funding
from Congress to do this, which led to a government shutdown in
2019 and the declaration of a national emergency, which
allowed him to divert funds to build the wall.
Biden campaigned on overturning Trump's immigration policies
and, once elected, a reduced immigration enforcement within
the country, focusing instead on addressing the drivers of
migration from Central America. The Trump administration used a
public health law to allow U.S. officials to quickly turn back
migrants at the border on public health grounds at the start of
the pandemic in 2020. The Biden administration
initially kept this restriction in place but tried to end its
use in 2022. Republicans sued and the courts
kept the rule in place. In 2023, when the Biden
administration announced that it was ending the national pandemic
emergency, these border restrictions went away.
That year, Customs and Border Protection apprehended almost
two and a half million people illegally crossing the southern
border, which was a record high. Well, historically the people
illegally crossing the southern border were Mexicans seeking
work. Between 2013 and 2021.
Most immigrants came from Asia, particularly China and India,
and most were seeking asylum. A Biden administration rule
prohibiting non Mexican migrants from seeking asylum at the
southern border if they hadn't first applied for it and been
denied in at least one other country along their route ended
a lot of that immigration. Mexico once again regained its
status as the top country of origin, with a growing number of
Central Americans joining them. While Trump made border control
a signature issue, he deported just 1.2 million people during
his first term in office, which was lower than Obama deported in
either of his two terms. A surge in unaccompanied minors
arriving at the US border began in 2014, and Obama faced
criticism at the time for detaining children in poor
conditions and deporting more than 3,000,000 immigrants, which
was more than either Clinton or Bush had done.
While Biden technically repatriated more illegal
immigrants than either Obama or Trump did, the majority were
turned back due to Trump's public health law, which Biden
tried to end in 2022 and actually ended in 2023, after
which a surge of migrants crossed the border seeking
asylum. Trump promised mass deportations
on the campaign trail, but deportations like he's promised
are more complicated than increased border security, as
they involve finding illegal immigrants, arresting and
detaining them, and, if he's to be taken at his word, getting
rid of 6% of the US workforce. None of this will be cheap to
do, and it can be expected to have wide-ranging economic
consequences. Sarah O'Connor wrote an
excellent piece in the FT last month about how economists have
spent years lecturing a skeptical public that migrants
don't suppress wages, as while they do increase the supply of
Labor, they also increase the demand for goods and services.
So in the end, one offsets the other, and wages stay roughly
the same. Now that Trump is planning to
deport millions of illegal immigrants, they're saying that
this will cause labor shortages, increasing wages and inflation.
She asks in her article. How can both of these claims be
true? Similarly, analysts are warning
that Trump's policies are inflationary and will hit
economic growth. But investors, on the other
hand, are betting that his plans will boost earnings and lift the
stock market even higher. Once again, one of the two must
be wrong. The first thing we need to
address is the question of is there actually an open border,
as some people have been claiming?
And why have so many migrants been crossing the southern US
border in recent years? There is, of course, not an open
border. There are US laws in place
making it illegal to cross the border without permission.
What's changed under Joe Biden is the way in which laws were
enforced. I spoke off the record with an
immigration attorney who explained the increased number
of border crossings is partially driven by the better treatment
of illegals, who today mostly turn themselves in once they've
crossed the border and claim asylum.
Apparently, the rise of social media means that successful
migrants are able to tell people back in their home country how
to get across, which attracts even more migrants.
The asylum process has always existed, but under prior
administrations, asylum seekers had to prove that they had a
legitimate claim straight away. Right now, people cross the
border, ask for asylum and get released pending a trial, and
due to court backlogs, it can take up to seven years for their
cases to be decided. Once they've turned themselves
in and applied for asylum, they are now legally in the United
States and can apply for work permits, which takes at least
180 days. They are not eligible for
federal benefits, food stamps or Social Security, but there are
some exceptions for unaccompanied minors and
survivors of torture who are eligible for some benefits.
I'm told that in the past it was considered so unpleasant dealing
with US authorities under Trump and Obama that it deterred many
migrants from even considering entering the United States.
The booming U.S. economy of the last few years, evidenced by the
recent jobs report which blew through expectations, has
attracted migrants who face significantly greater
difficulties in their home countries than in the United
States. According to the DHS, people
from over 168 different countries have crossed the
southern border into the United States over the last three
years. The number of migrants peaked in
December 2023, and according to data from US Customs and Border
Protection, the number of illegal migrants plummeted in
2024. The decline came after policy
changes on both sides of the border, where authorities in
Mexico stepped up enforcement and President Biden issued an
executive order over the summer making it harder for migrants to
seek asylum and remain in the country.
While this issue can seem quite politicized and rhetoric around
immigration can get quite heated, hopefully you can see
from this brief history that both Republicans and Democrats
have been trying to get the balance right between the need
for workers in the United States and the resources available.
It's worth remembering that both the share of the US population
that's of working age and the ratio of workers to retirees are
declining as Americans live longer and have fewer children.
As the American population ages, America needs more immigrants
for the economy to continue thriving, otherwise it runs the
risk of ending up like Japan. Immigration reform has been
needed for quite some time. The last major legislation to
make it through Congress came under Ronald Reagan in 1986 when
his administration granted legal amnesty to 3,000,000
undocumented residents. In 1990, George Bush Senior more
than doubled the cap for immigrant visas from 270,000 to
700,000. In 2007, George Bush Junior
tried to pass an Immigration Bill which didn't make it
through the Senate. In 2013, Obama tried to pass a
bill which stalled in the House of Representatives.
Trump and Biden both put forth plans which went nowhere.
While Trump ramped up anti immigrant rhetoric on the
campaign trail, the measures he's proposing would not
actually be the most extreme anti immigrant policies in U.S.
history. The Chinese Exclusion Act of
1882 effectively banned Chinese immigration to the United States
for 83 years until its repeal in 1943.
The Immigration Act of 1924 was more extreme too, establishing
national origin quotas to limit the number of immigrants allowed
into the United States to 2% of the number of people of that
nationality in the country as of 1890.
This was enacted to preserve the racial composition of the
country and was praised by an Austrian immigrant who had moved
to Germany named Adolf Hitler, who is very much not a friend of
the show. He praised the act in 1928 for
banishing strangers of the blood.
Tom Holman, Trump's borders are who worked under both Obama and
Trump in the past, has said that the administration will begin
deportations with the worst first, meaning migrants who are
in the country illegally and have been convicted of crimes.
On Fox News, he also said that worksite raids would have to
happen, too. Some of his comments on visa
programs have made employers worried that Trump could reduce
legal immigration, too. There's a range of possible
outcomes. Over the next four years, Trump
could limit the length of time for which a visa is valid and
make it harder to get visas with increased fees and waiting
times. This would reduce the number of
people granted green cards. He can also limit the number of
refugees accepted. Trump plans to restart his
policy requiring migrants at the southern border to await court
hearings in Mexico, which would require cooperation from the
Mexican government. He says that he'll end a
government scheme that lets migrants make appointments to
apply for asylum using an app. He also intends to end programs
offering some nationalities work permits but not a path to
citizenship. The mass deportations that Trump
has promised can't happen without extra funding from
Congress. Trump's Borders R Holman has
acknowledged that the breadth of that operation largely depends
on how much money Congress provides for it.
Trump has vowed to end birthright citizenship too,
saying that he would take executive action to circumvent
the 14th Amendment, which guarantees citizenship to people
born in the United States. Birthright citizenship was
introduced in 1868 to guarantee citizenship to all former slaves
and to any child born on US soil.
Birthright tourism has been controversial in recent years as
wealthy foreign women fly to the United States off non tourist
visas and stay just long enough to give birth and obtain birth
certificates and passports for their children.
Most other countries don't offer this right, and usually at least
one of a child's parents must already be a citizen.
Nearly all of the countries with unrestricted birthright
citizenship are in North America or South America, and the US and
Canada are the only two NATO countries with this right.
Ending birthright citizenship would probably not be able to be
done by executive order, as Trump has suggested, and would
likely require a constitutional amendment or a very different
interpretation of the Constitution by the Supreme
Court. Trump has talked about stripping
citizenship from people who have illegitimately received
birthright citizenship too, which would make them
immediately subject to deportation.
While people can be stripped of citizenship under U.S. law, it
happens under very specific circumstances, like running for
political office in a foreign country, entering into military
service in a foreign country, committing an act of treason
against the US, and things like that.
Changing the rules around birthright citizenship probably
wouldn't happen very quickly. The bigger question is how would
Trump's mass deportations, if enacted, affect the US economy?
There would obviously be huge costs associated with rounding
up 8 to 10 million people, holding them in detention
facilities and processing them through the courts.
Additionally, it would be hugely disruptive for an economy to
lose 6% of its workforce, especially in an environment
where labour is in tight supply. You can think of an economy as
being like a machine that combines labour, capital and raw
materials to produce goods and services.
If we suddenly remove 6% of the labour from that equation, we
end up with lower output. On top of that, deporting
millions of people who consume goods and services would also
reduce demand in the economy. Tom Holman Trump's borders are
says that he'll need 100,000 additional detention beds, about
double the existing number to process the deportations he's
planning. This number seems way too small.
If the plan is to deport more than 10 million people over the
next four years, the American Immigration Council estimates
that the US would need to build and maintain 24 times more ICE
detention capacity than currently exists to deport
1,000,000 immigrants a year. This is the reason that prison
company stocks rallied so much when the election results were
announced. The AIC estimates that to carry
out even 1,000,000 deportations a year, ICE would need to hire
around 30,000 new enforcement officers, which would instantly
make it the largest law enforcement agency in the
federal government. At present, there are 3.7
million cases pending before 735 US immigration judges, and this
backlog means that immigrants weighed an average of three
years for a decision. People who lose their cases can
appeal, and their deportations take even longer.
Trump would need to significantly increase the
number of judges and find ways to expedite court cases.
Transporting migrants back to their home countries is
expensive, too. In 2023, the head of ICE told
Congress that an average removal flight costs about $17,000 an
hour. It's estimated that mass
deportations on the scale being discussed would cost around a
trillion dollars and take at least 10 years to complete.
In order to pay for this, Trump could possibly declare a
national emergency, like he did in 2019 to use defence funds to
help fund the border wall. There would be other costs
associated with mass deportations, too.
According to the Institute on Taxation and Economic Policy,
undocumented immigrants pay just under $100 billion in federal,
state and local taxes per year. Most of these taxes go to the
federal government, so undocumented immigrants are good
for the federal budget but often weigh on state and local
governments, who are responsible for supplying schooling and
healthcare and other services, but don't receive as much tax
revenue in return. Stephen Miller, who's expected
to take a leading role in implementing Trump's immigration
agenda, has claimed that mass deportations would create jobs
for Americans and increase wages.
There are some real world tests on the effects of mass
deportations on labour market outcomes for US born workers.
One of the best ones being by East Lock, Mansoor and Velasquez
of the University of Colorado, who studied the roll out of
Obama's deportations which were implemented county by county
between 2008 and 2014. The timing of the removals was
based on how close the counties were to ICE offices and how
quickly the IT infrastructure needed could be set up in a
county. The study found that there were
eight jobs lost for US born workers for every 100
deportations. This was analysed over a four
year time scale and there was no sign of recovery in jobs for US
born workers over that period. The reason for this, according
to the study, is that unauthorized immigrant workers
and US born workers are not substitutes.
They're not competing for the same jobs.
Unauthorized immigrants take low paying, dangerous and less
attractive jobs more frequently than both US born workers and
authorized immigrant workers. When employers are unable to
hire unauthorized workers, they often have to scale back their
businesses, which causes job losses for Usborne workers.
Caregiving and household service jobs are very common amongst
unauthorized immigrants and when they go away, people end up
cleaning their own homes, mowing their own lawns and often find
it cheaper to look after children and elderly relatives
at home rather than pay for care.
A decline in the supply of childcare workers led to a
reduction in the number of college educated mothers in the
workforce, according to the study.
The paper shows that unauthorized immigrants
contribute to local demand for goods and services too, like
haircuts, food and cars, meaning that deportations lead to less
revenue for local hair stylists, grocery stores and car
dealerships, causing them to hire fewer US born workers.
Finally, deportations impact tax revenues and facilitate the
solvency of the Social Security and Medicare systems, as illegal
immigrants who work pay into these systems while not being
eligible to receive any benefits.
The US agriculture industry relies heavily on temporary
foreign workers to harvest farm produce and are warning that
deportation plans could create mass labor shortages, crippling
farms and raising food prices. Warwick McKibben of the
Australian National University looked at the economic
implications of the planned deportations, building a global
macro model to compare different scenarios where over the next
two years either 1.3 million workers are removed or 7.5
million workers are removed. It's quite a detailed model as
mass migration effects both the US and other countries,
affecting production networks, financial flows, and leads to
adjustments in other countries that then feedback to the US.
His model shows that removing a lot of workers from an economy
causes a drop in GDP, as you'd expect.
When workers disappear from a sector like agriculture or
services, he shows that the capital that's currently
deployed in that sector can't be quickly redeployed elsewhere,
and so the return on capital in the United States falls as
there's less economic activity associated with that capital.
His model shows that mass deportations would have an
effect on the business cycle too, as when the return on
capital declines, incomes fall, shareholder returns fall, and
overall spending in the economy declines.
According to his model, the effect on the business cycle has
a remarkably small spillover to other countries.
With 1.3 million deportations, he estimates that USGDP would
fall by 1.2%, and with seven and a half million deportations, GDP
would fall by 7.4%. His model shows that the
deportations would be inflationary too, and once
again, more deportations leads to more inflation.
He assumes that the Federal Reserve responds to inflation by
hiking rates, but is limited as to what they can do due to the
slowing economy. With regard to the inflationary
effects, you can see with the coloured lines on this chart
that this is inflationary for other economies too, but the
greatest impact occurs in the United States.
Interestingly, under this analysis, removing a lot of
workers from the US economy improves the trade balance, one
of the things that Trump has said that he wants to do.
The reason this happens is that when the return on capital in
the United States falls, foreign investment stops flowing to the
US economy, going instead to where expected returns are
higher. This causes the US dollar to
weaken, which boosts exports and reduces imports.
The farming sector would be hit hardest by deportations.
A report from the University of California, Davis estimates that
almost 1,000,000 of Americans, two and a half million farm
workers are unauthorized immigrants.
Dairy and poultry farms are particularly reliant on them,
but the loss of these workers could be offset by increased
automation. Construction costs in America
would likely rise too, as 1.5 million unauthorized migrants
work in that industry, which would be much harder to
automate. Housing experts already say that
the US is not building enough new homes, but obviously the
reduction in building would be offset by a reduction in
population. But not every American would
want to live in the types of homes or in the locations where
undocumented workers currently live.
Mckibben's study is very interesting, but it does contain
a lot of assumptions and a lot of moving parts, so it's
unlikely to be a perfect predictor of outcomes.
But it does help illuminate how a labour shock would impact the
US economy. I'll put a link to a
presentation by McKibben in the video description for those of
you who are interested. One of the big impacts of either
a flood of immigration or mass deportations is that they cause
shocks which have economic effects in border states.
When A rush of new migrants arrive, problems arise from
there not being enough housing, school places, or employment for
the new arrivals. Similarly, when a large number
of immigrants who have become embedded in a community suddenly
leave, it has harmful effects too.
According to Pew Research, nearly 80% of unauthorized
migrants in the United States have lived there for more than a
decade. Many of these people are deeply
integrated. 6% of all American school children have at least
one unauthorized parent, meaning that 4.4 million American
children would be affected by deportations.
While immigration has been a heated topic, roughly 60% of
American voters still say that undocumented immigrants already
in the country should be allowed to stay in the country legally,
either with a path to citizenship or a right to a work
visa. In Sarah O'Connor's piece in the
Financial Times on whether migrants were undercutting the
wages of domestic workers or not, she described how the
arrival of migrants can change the nature of certain types of
work. She gives the example of how
employers in certain sectors, like meat packing in the UK,
responded to the availability of Eastern European migrant workers
by changing or expanding in ways that they might not otherwise
have done. When the migrant workers
arrived, British meat processing plants shifted to 12 hour shifts
and began opening facilities in more remote locations because
they could find migrant workers willing to work there and the
real estate was cheaper. She describes how farmers in the
UK responded to the availability of seasonal workers by planting
more labour intensive soft fruits than before.
She points out that many of the sectors that employ migrant
workers have very tight profit margins as they sell to grocery
chains who negotiate very low prices but they then pass on to
their customers. In the wake of Brexit, many
hoped that wages for British workers would rise now that the
Eastern European workers were gone.
But that didn't really work out. Farmers instead had to deal with
crops rotting in their fields and complained about having to
slaughter healthy animals due to labor shortages.
The British government eventually gave in and handed
out more visas to recruit migrant workers.
With mass deportations, it's likely that the cost of food and
housing will rise in the United States as labor shortages occur.
It's also possible that certain American made goods could be
swapped for imports if local production became too expensive.
We'll just have to wait and find out if investors or economists
are right about how Trump's plans will affect the stock
market and the economy. It seems to me that Trump keeps
an eye on the stock market as a measure of his performance in
office, and for that reason he might back down from certain
ideas if they appear to be hurting the economy.
Trump is also likely to face legal challenges in rounding up
immigrants and push back from other politicians over the
extreme costs of his deportation plans.
And for that reason, I think the worst case scenarios outlined in
the various studies are unlikely.
It's always worth remembering that politicians always talk big
on the campaign trail, but they don't always follow through on
their promises. Elon Musk, Trump's head of
procurement reform, has already begun backtracking on his claims
of how much he could cut from the federal budget.
Thanks for tuning in to this week's podcast, with a special
thanks to my supporters on Patreon who make it all happen.
If you'd like to support the show, there's a link in the show
notes. Have a great week and talk to
you again soon. Bye.