Trump's mass deportation plan could end up hurting growth

WASHINGTON

President-elect Donald Trump's hardline immigration proposals, including a controversial mass deportation plan, could prove economically damaging, analysts say, with U.S. sectors that rely heavily on foreign workers like agriculture and construction especially hard hit.

U.S. authorities estimate that there are around 11 million unauthorized people living in the United States, the vast majority of whom come from Mexico.

Around 8.3 million unauthorized people were in the labor force in 2022, just under 5 percent of the overall workforce.

"Today our cities are flooded with illegal aliens," Trump said on the campaign trail earlier this year, adding: "Americans are being squeezed out of the labor force and their jobs are taken."

The reality, however, is more complex; many of the sectors that could be the hardest-hit have long struggled to attract U.S. workers.

"The construction and agriculture industries would lose at least one in eight workers, while in hospitality, about one in 14 workers would be deported due to their undocumented status," the non-profit American Immigration Council (AIC) said in a recent report on Trump's deportation plans.

A recent joint study by the American Enterprise Institute (AEI), Brookings Institution, and the Niskanen Center estimated that Trump's immigration plans could curb U.S. GDP growth in 2025 by as much as 0.4 percentage points.

The impact on growth would primarily come from the direct effect of having fewer foreign workers producing goods and services, with an additional, smaller decline in output coming from less consumer spending by those groups.

In such a scenario, the authors said, "legal immigration is slightly below where it was during the pre-pandemic Trump administration, while enforcement and deportation efforts reach levels not seen in recent decades."

A total of 3.2 million people would be deported during Trump's term under this projection, with net migration falling from 3.3 million in 2024 to negative 740,000 in 2025, boosted by a sharp rise in voluntary emigration.

In a more extreme scenario, which analysts say is highly unlikely, the impact on growth could be much more significant.

A recent Peterson Institute for International Economics report modelled the impact of expelling all 8.3 million unauthorized immigrant workers.

It predicted that economic growth by 2028 could be 7.4 percent beneath baseline estimates, "meaning no U.S. net economic growth occurs over the second Trump term because of this policy alone."

At the same time, U.S. inflation would be 3.5 percentage points higher by 2026 than it would otherwise be, as employers raised wages to attract American workers.

Most analysts expect legal, logistical and financial challenges will blunt the most extreme proposals, as they did during the first Trump administration, with the end result being that net migration eases modestly next year compared to pre-pandemic levels.