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.