Donald Trump’s harsh immigration policies have sparked unprecedented protests in cities across the United States, riling up Americans and driving the economic debate. His administration has been shockingly aggressive, recently rolling out plans to deport a million undocumented immigrants a year. Many analysts think this target is a bridge too far. The $170 billion in new funding for border militarization and immigration enforcement triggers the biggest clash. It puts a particular focus on the expected impacts on the labor market and inflation rates.
And the consequences of Trump’s policies have reached beyond our borders. Already, analysts are warning that he is dangerously cavalier on this score. They warn it risks pushing up U.S. bond yields, which would be especially dangerous for emerging markets like China, Mexico and South Korea. It would expose them to increased economic fragility as the U.S. tries to implement tougher immigration and trade policies.
Immigration Policy and Labor Market Implications
Trump proposed a deportation force and the deportation of at least one million people annually. While this goal is patently unachievable, even removing a small share of that number would be a huge blow to an already-stretched labor market. With the U.S. economy already facing huge tightness for workers, McDonald’s CEO recently called attention to his restaurant staff shortages. The coming deportations would further increase pressure in many sectors.
“Recent trade deals indicate that the average US tariff will settle close to a 15% midpoint (well above our initial base case of an effective 10%), raising the risk that higher levels of deportations could cause further tightness in the labor markets and so see inflation accelerate beyond current market expectations.” – GlobalData TS Lombard’s Global Economic Outlook Executive Briefing
As an example, this fiscal note highlights the complexity of achieving immigration control while having a stable economy. If businesses continue to have a harder than normal time filling positions, upward inflationary pressures could be substantial.
Economic Forecasts and Inflationary Risks
Whatever the story with COVID, the economic forecast for the U.S. points to a still daunting landscape. GlobalData TS Lombard has even forecasted that U.S. inflation would fall to 3% by 2025. Conversely, they expect economic growth to decelerate to 1.5%. Trump’s tariffs and immigration policies have a starring role in these predictions. Yet some of the same experts are warning that they might create an “inflationary perfect storm.”
The resulting combination of high tariffs, now averaging 15 percent, with an aggressive deportation target possibly creates additional inflationary pressures. Analysts are expressing alarm at what these policies are doing to domestic markets. They’re convinced the impact could reverberate through the international economic order.
Impact on Emerging Markets
Impacts of Trump’s policies can be felt around the world, especially as decoupling from China continues to grow. The U.S. applies stringent controls to Chinese imports, while turning a blind eye to Chinese exports. Consequently, emerging markets might lose more in additional benefits than they would gain from these changes.
“could catalyse growth in Europe, as governments are obliged to spend more under pressure from the US and its threats to cut its involvement in NATO.” – GlobalData TS Lombard’s Global Economic Outlook Executive Briefing
This statement illustrates how Trump’s policies may inadvertently foster economic growth in some regions while simultaneously destabilizing others, notably those reliant on trade with the U.S.