What Will Be the Economic Fallout of Trump’s Immigration Crackdown?
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I'm Stephanie Flanders, head of government and economics at Bloomberg. And welcome to Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, what on earth is going to happen next.

And we're recording this on Tuesday, just after the Senate pulled an all-nighter attempting to pass Donald Trump's $3.3 trillion budget bill. And that's the last we're going to say about it, because this week we're focusing on a part of Trumponomics which could end up having a bigger impact on the US economy. The crackdown on immigration. What's at stake? Who's hurting already? And what are the odds that the administration, on this at least, changes course?

As we record this week's conversation, President Donald Trump is in fact en route to Ochope, Florida. He's visiting what's been dubbed Alligator Alcatraz, which is the Florida Attorney General's proposal to turn an abandoned airport in the heart of the Everglades into a, quote, one-stop shop to carry out President Trump's mass deportation agenda.

The plan has its critics, naturally. Building a tent city in a fragile swamp during hurricane season doesn't strike everyone as the best idea, but it's captured the attention of the MAGA faithful because it so perfectly symbolises the aggressive approach that ICE, Immigration and Customs Enforcement, is taking to get its detention numbers up, raiding construction sites, workplaces and courthouses to round up unauthorised immigrants.

We've all seen the protests that these raids have caused across America. Slightly more beneath the surface, there's also deepening concern about the economic impact of these policies and the long-term risks to US economic growth. So to help us understand more about what's worrying economists and businesses and how that might shape the administration's immigration strategy from here...

We've invited two of my Bloomberg colleagues on for today's episode. With me from Miami, I'm very glad to welcome to Trumponomics, Jonathan Levin, a Bloomberg Opinion columnist focused on US markets and economics. Jonathan, thanks very much for coming on Trumponomics. Honored to be here. And from Washington, DC, Kate Davidson, Bloomberg's Managing Editor for US Economic Policy, who you've heard before. Thanks for having me. ♪

I'm going to start with you, Jonathan, which is sort of unusual because you're the opinion columnist, but you're also sitting in Miami. So I know that you're seeing some of these impacts of the immigration policies close up. And let me just start with that. How are these policies affecting the labour market right now? Or what's the concern for local employers?

Yeah, well, a labor market, it's not exactly clear just yet, but I think we're seeing indications of this in the housing market. For instance, people are more apprehensive about making long-term decisions because they don't know what their status is going to be in the medium term. Over the next few months, you have to start feeling the impacts because

because estimates from the likes of Morgan Stanley suggest that the net flows of immigrants, this is both documented and undocumented, are going to step down in just a huge way from 2024 to 2025. The estimate is that we'll go from something on the order of a net 3 million all the way down to something...

on the order of a 0.3, 0.4. So just from a flows standpoint, that's a massive change. And it's something that's going to feel even more massive in immigrant heavy cities like the one that I live in. I do want to clarify that despite the sort of shock and awe of a lot of these raids and

Where the effect is really being felt, again, is in that sort of chilling effect, which is affecting inflows. And it's also affecting people's willingness to show up at their workplaces. And one final thing unrelated to the documented, undocumented question, the Trump administration has also moved

to remove the status of a number of people who were working here legally, including prominently in the hospitality industry here in South Florida, where I live, in the warehousing industry. So, you know, I'm thinking specifically about the many, many Venezuelans who fled their country and were working in South Florida legally and going forward will no longer be able to do so.

So there's a lot there, Jonathan. It's great because you've mentioned a lot of the different things that we want to touch on. There's a sort of long-term reliance on

of the US economy on immigration that we've seen, particularly in the last few years. It's where a lot of the labour force growth has come from the last few years. You've also highlighted something that I think is coming on the radar more and more. It's not just undocumented immigrants that are potentially in the administration sites. There's also various naturalised citizens and people of a legal status, like the Haitians who were offered refuge in the US.

The policy is broadening to them. And finally, I want to get to first, there's this fact that you can be impacting the labour market and people can be disappearing from the labour force even without being deported because people are not showing up to work. And Kate, some of your team did a fantastic story the other day highlighting the sectors where that was already apparent, including in L.A.,

Sure. Well, of course, Jonathan is in South Florida, but we have seen on national news lots of headlines about what's happening in Los Angeles, right? And what our colleagues found in talking to various business owners and talking to some workers, I mean, people are afraid. You're not hearing the hum of sewing machines buzzing in these garment factories in L.A. Fields had emptied out where crops are picked, although it sounds like workers were returning despite some of the concerns they saw.

They spoke with Texas dairy farmers who say workers aren't showing up to milk cows, an Idaho onion grower who's struggling to find enough crop hands. A lot of this, again, in that agricultural space, which we saw President Trump talk about and kind of acknowledge that he was hearing from people in those industries that this was affecting their ability to keep crops.

business going, essentially. And I think that chilling effect is really important. And as I said, affects businesses and productivity. And that's where you're starting to hear and see more of the pressure ramp up. In our reporting, it's difficult, right, to find employers who are willing to go on the record and say, yes, we hire and we employ immigrants who aren't allowed to work here. But when push comes to shove and when these raids

As these raids have ramped up, you're starting to see these issues. They're unavoidable. You know, they're clear as day that they're becoming a bigger problem. Yes. And you've named there some of the sectors that are most reliant on undocumented workers, agriculture, hospitality, clothing.

construction. But as Jonathan said, the Trump administration isn't just targeting undocumented workers, but also workers who are here on legal temporary work permits. And I saw we've written about this, that's become a particular challenge for parts of the healthcare industry.

Right. Some of our colleagues did a story about home health aides, and that is one of the fastest growing jobs in the country or the fastest growing job in the country. And a lot of workers in that sector are here on those temporary work permits. And they are, we talked to some senior living communities, and they are saying that they are losing workers. People have left that they're afraid to come to work or that they're unable to because of these efforts. And so it's having an impact there, not just in the sectors that are reliant on undocumented workers.

Yeah, I thought that was fascinating. It's one of the single most common US jobs. It's like 4 million people working as home health and personal care aides. And it's, although there's foreign-born, about one in five of US workers, but 40% of home health aides are foreign-born. And

And Jonathan, you've mentioned in some of your columns the uncertainty we've had. As Kate mentioned, Donald Trump had even said he's concerned about the impact. He's obviously hearing this from presumably people in the hospitality business, his own business.

are worried about this, are complaining to him. And there was at one point, he seemed to be suggesting a softer path in those sectors. But there was then a reversal. Remind us where we actually are. I mean, there's just a lot of uncertainty about the policy. Yeah, well, it's

Speaks to sort of what a shock this policy would represent to a number of sectors. And as you say, it seems like the Trump administration is hearing this from some of their supporters. Basically, what happened is Trump came out on social media and he said, we're cognizant of the pressure that this is putting on the agriculture sector, of course, a core base for President Trump. We're cognizant of the fact

that this is putting a lot of pressure on hospitality, where President Trump himself has a lot of experience. You know, it seemed like President Trump took all this on board and he vaguely said, we're going to do something about this. Subsequently, there was some reporting that came out that suggested that the very same day, the order actually trickled down to ICE and said, hold on raids in these places. But it wasn't more than a few days that went by that

That guidance ended up being walked back. So it seems like the administration is between a rock and a hard place. It wants to come off as sort of tough on immigration, tough on these institutions, tough on would-be violators of power.

immigration laws. But at the same time, there does seem to be a very personal understanding by President Trump that these workers are just the way that these corners of the economy work. One further thing, I just want to underscore that back in the first Trump administration, there was a lot of wonderful reporting by The New York Times about how Trump himself

either directly or indirectly employed many of these workers at his various clubs and so on and so forth. There was even a really eye-opening report

that the woman who cleaned his room and made his bed was undocumented herself. So it really just goes to show you that these people are part of the fabric of the U.S. economy. And if you were to take them out of it, you could think what you will about the long-term impacts, but it's going to deliver a shock.

And if I could just jump into one thing to add there as well, is that these are industries that have already faced chronic labor shortages, right? So that's part of the, you know, the idea, I think, for the administration is if immigrants weren't taking these jobs, there were all these other people who would be willing to step in and take them. And I think that

there are a lot of people with a lot of reason to be skeptical. That's the case unless there are other reforms or other changes that happen that could make legal immigration easier. Yeah, of course, we know unemployment is extremely low. And as a point we made earlier, a large share of the employment growth, possibly all the employment growth in the last few years has been from immigrants because of a tight labor market.

Kate, you've taken us on to the next year or so economic impact. How much do you have a sense that this is on the Federal Reserve's, the central bank's radar?

Well, I think it is definitely on their radar. And when we have heard Fed Chair Jay Powell talk about all the uncertainty right now around the path ahead for the Fed, he talks about broadly about government policies. Yes, he talks about tariffs and he's taken a lot of heat for that, that he's weighing in on them. But he does make a point to say it's not just tariffs, it's

tax the tax bill, changes to the tax code it is, or extending these tax cuts that we had previously. And it's also immigration. And Powell talked a lot about immigration actually last year. And even before then, there was a lot of new research and analysis of the immigration data that showed that

Actually, this wave of immigration had helped to expand the labor force and was helpful to the Fed in its bid to bring down inflation without driving up unemployment. It helped to bolster growth. I mean, that was something that we saw over several years after the pandemic, but really picked up in recent years and might have been part of the reason why the Fed didn't have a bigger downturn, as was expected when it ramped up interest rates significantly.

then inflation came down without this big weakening. So now that is essentially going in reverse. And so what we've seen so far this year is the size of the workforce shrunk in May, and it was the biggest back-to-back decline in the number of foreign-born workers and labor force since 2020. The outlook right now is for a smaller labor force, which actually could actually end up limiting the rise in unemployment. It gets a little bit complicated, but it's something that the Fed and the

Howell has talked about, which is that this just may be masking underlying weakness in the economy if you have fewer workers in the labor force. So I think that could potentially make their job harder as they try to figure out what's actually going on here. If there are just fewer workers competing for jobs, essentially, and businesses have slowed hiring or they're laying people off

The underlying picture, it might not be clear that it's looking as bad. So that's something that the Fed has to pay close attention to as well as it's deciding, hey, is it time to start lowering rates? How bad is the labor market or underlying demand at the same time that they're worried about a potential inflation pressures from tariffs?

And the inflation impact is interesting. And I guess it goes to the long-term objective of this policy. I mean, of course, there'll be some who will say this is driven by a nativist, populist agenda. But there's plenty of people who would back a version of this approach. We had one of them on the show at the very beginning of Trumponomics, Oren Kass, the conservative economist. There are thinkers on the right and on the left who

who feel that the US economy has been too reliant on cheap immigrant labour, that has worsened wages and working conditions for a big chunk of the working population, and that we need to have a different model.

The reality is that illegal immigration overwhelmingly goes into the labor market in a set of low wage sectors. And those happen to be sectors where working conditions are not very good, where typically we have not seen significant investments in productivity increases because there has always been an assumption that we can find illegal immigrants to do the work.

And he sort of accepted that there was going to be short-term costs, but that ultimately the market would respond and you would see working conditions get better and more Americans are more attracted into these industries. And so as those folks leave the labor market, what we are going to see is employers having to offer higher wages and better conditions for

to attract the workers that they need. And that will be a very good thing for workers. I'm always a little bit puzzled when the exact same folks who celebrate the wonders of the free market and competitive forces then turn around if we're talking about immigration, say, oh no, none of this works. Businesses are designed to operate under constraints and solve the problems put in front of them. And the problem is for our economy, we have not put the problem of

provide a good product at a low price with the workers in America as the problem to solve. And now that is going to be the problem to solve. And I'm actually somebody who has a lot of faith in markets and businesses to solve that problem.

But, Jonathan, I mean, firstly, I guess, do you buy that sort of longer term view of what's going on here? And when you're just looking at the industries that you're familiar with, those sectors that we've talked about, how likely is it that's going to happen, that you'll see just a ramping up of working conditions combined with possibly a bit of automation?

Well, first of all, I don't know that the evidence exactly supports Oren's argument on that. I mean, phenomenal economists David Card and George Borjas, who is now associated with the Trump CEA, have been studying this issue for decades and decades. And what all of these studies find

find both sort of natural experiments and model-based studies done by George Borjas, now with the CEA, they find sort of small effects on the key population.

what they sort of disparagingly call unskilled native-born workers. And, you know, I don't love the term, but... A small impact on employment, but also on wages. On the real wages, more specifically. But moving beyond that, I think that the key question in the here and now is, A, are there going to be shocks? And B, like, is there a smooth path to move beyond the shocks? And...

So for A, I'm sure there are going to be shocks because as we've talked about earlier in this conversation, we have all these industries that Kate's talked about, healthcare, construction, agriculture, leisure and hospitality, that...

for better or worse, we have built these industries in the United States to depend on this immigrant labor, specifically that quote-unquote low-skilled immigrant labor. It's the way our economy works. And then the subsequent question, is there a smooth and easy way to move on from that? So let's just take the example of construction. And construction is so important because the

Everybody on every side of the political aisle will acknowledge that there's a massive housing deficit in the United States and that critical for better quality of life for the entire population is to build more housing. OK, yes, we need productivity boosters in that sector. Yes, we need to be doing more off.

offsite manufacturing. We need to be bringing in these prefabricated components, entire walls with the insulation built in. We need to get a lot more productive in that sector in the way that some Scandinavian economies have gotten or the Germans or the Japanese. But guess what? That alone is not going to help us solve the deficit.

We need the productivity enhancements and we need the immigrant labor. Let's move over to agriculture. I am fairly bullish on the possibility to bring in machines that are going to pick the grapes that make our wine and whatever, pick our strawberries. But the robots just aren't good enough to pick everything.

everything that we want to eat in this country. Think about like these sinewy trees that a lot of fruits grow on. It's really hard to get a big machine in between those trees in these orchards, right? So there are a lot of problems that still haven't been solved. And we can have these sort of sci-fi...

fantasies that, like the humanoid robots that Tesla is manufacturing, are going to solve all of these problems. But they can't solve them in the here and now, and I'm fairly confident that they're not going to solve them even in the medium term. And in the meantime...

We need labor to solve the problem for us, to put food on the table. And of course, yeah, and the Tesla's not going to solve it if Elon Musk has been deported, but that's a whole other... We come back full circle. Okay, final question to you, Kate. Federal Reserve and economists generally are looking at the economy and thinking about the impact of tariffs, which is inflationary. If

If the bottom line of this policy, the sort of ultimate economic impact, whatever the political ramifications may be, is that we have higher wages, labour shortages and yes, higher inflation, do you think there's a chance that the administration has to soften its approach or is this just too central to the agenda?

That's the big question, right? I wish I could answer it, but I think that there's a chance. Sure, there's a chance. I think it might come down to, as it always does in the Trump administration, who has more influence or who maybe has the presidency or last. I think that Treasury Secretary Scott Besant does.

would probably be the voice to deliver that message, right, if things were getting that, if it was getting that bad for the economy. Although, as we've seen with tariffs, you know, President Trump seems to be pretty happy just blaming the Fed and saying the Fed should lower rates and that will help support the economy. So maybe that's the tack you would take. Of course,

He'll only be able to do that for so much longer. He'll be naming a new Fed chair and maybe that comes up. You know, maybe he will. He said he wants somebody who's going to lower rates. Maybe this is or should be part of the conversation about how would the next Fed chair view this immigration issue and what could the Fed do to fix that problem? So that's another way. That's another way around it. But I think for now, it certainly seems, as Jonathan was pointing out, that there is

You know, when there has been an effort to be more to, I guess, ease off a little bit that the folks who are those immigration hardliners, if we want to call them that, have come right back in and managed to get the president back on the track that they think he ought to be on.

Yeah, it makes me think. So the sort of forward indicators that we have to develop for this Trumponomics economy, it's not just what we've noticed in the labour market. There has been a shrinking proportion of foreign-born in the labour numbers just in the last few months, which shows something about that chilling effect. But maybe we also ought to be monitoring how well Scott Besant is getting on with Stephen Miller and who's had, you know, which of them has more meetings with Donald Trump.

Kate Davidson, Jonathan Levine, thank you so much. Thank you. Thank you.

Thanks for listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders. I was joined by Bloomberg's Jonathan Levin and Kate Davidson. Trumponomics is produced by Samar Sadi and Moses Andam, with help from Amy Keene. And special thanks to Rachel Lewis-Kriske. Sound design is by Blake Maples, and the head of Bloomberg Podcasts is Sage Bowman. To help others find the show and enjoy it, please rate it and review it highly wherever you listen. ♪

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