Trump’s mass deportation plans could wreak havoc on the fight against inflation

Trump has promised a mass deportation, which economists warn could be highly inflationary.

When the Federal Reserve cut interest rates last week, the country began to close the door on the inflation that has defined the post-pandemic era. But think-tank economists warned B-17 that former President Donald Trump’s proposed mass deportation could open that door right back up.

The border has become a key campaign issue this election, with Trump consistently calling Vice President Kamala Harris a “Border Czar.” He promises to implement a uniquely restrictive border policy and carry out the “largest domestic deportation in American history.” To make good on his word and break records, Trump would have to deport more than 1.2 million people. Trump also intends to end birthright citizenship, build new ICE detention centers, and reinstate his first-term policies should he win in November.

Harris supports the bipartisan border security bill that didn’t make it through in Congress this year. It would have provided more funding to detention centers and enacted stricter measures for asylum seekers, among other things. Neither the Harris nor Trump campaigns responded to B-17 request for comment.

Beyond posing significant humanitarian concerns, economists worry Trump’s proposed mass deportation would be hugely inflationary, partly due to the basic calculations of supply and demand.

Wendy Edelberg, a senior fellow in economic studies at the Brookings Institution, a nonpartisan think tank, said that when the population grows at a stable rate, the economy takes that growth “in stride.” As there are more people willing to work, there are also more people demanding goods and services. These two factors should, theoretically, balance out and enable growth. Evidence from earlier this year indicates that immigration is a net positive for the overall economy, as many immigrants are willing to work in positions that American-born citizens avoid.

Warwick McKibbin, a senior fellow at the nonpartisan research organization the Peterson Institute for International Economics, said immigration is a natural part of economic growth. Both he and Edelberg said a sudden mass deportation would upend the labor supply and, in turn, the ability to make goods.

Adam Posen, the president of the Peterson Institute, told Bloomberg TV in June the depleted labor supply would necessitate firms pay higher wages, which would jack up prices for consumers. Posen said the Federal Reserve would likely raise interest rates significantly as a result.

“It’s pretty clear to me, all else being equal, you reduce the labor supply very abruptly, and you’re going to get an increase in inflation because of an increase in prices,” Edelberg told B-17. “That’s relatively straightforward.”

The overall calculus, however, isn’t quite so straightforward. Edelberg said that mass deportations would also lead to a sudden drop-off in consumer spending, which would happen in “geographically concentrated areas where those immigrants used to live.”

Imagine a contractor who built single-family homes to cater to a booming population of immigrants in their town. Should those people suddenly be deported, the contractor would be stuck with all this housing in one area.

“Multiply that across all the things that immigrants spend money on,” Edelberg said.

McKibbin has researched the impact of mass deportation and said it would lead to a combination of lower production and higher costs, particularly in the agriculture and construction sectors.

Josh Bivens, the chief economist at the Economic Policy Institute, a think tank funded by labor unions, wrote in June that a mass deportation would create particularly bad bottlenecks in the food supply chain. He added construction to the list of acutely vulnerable sectors in an emailed statement to B-17 and said that “the upward price pressure could be significant and pretty long-lasting.”

And while everyday Americans bear much of the burden of inflation — at the grocery store, the gas pump, the day care center — investors would also be negatively impacted by mass deportation. McKibbin said that investors will likely be less inclined to invest in hard-hit sectors.

“What determines the return on capital in a sector is the workers. So if you’re getting less workers and the machines are going to be run less frequently, the return on capital is going to be lower,” he said. Shareholders may be more likely to invest their money overseas.

Edelberg said that merely having fewer people in the economy leads to less investment, because there are fewer people to outfit with capital. Add on the uncertainty that mass deportation would bring, and a chilling effect among investors seems plausible.

“It’s not hard to spin a narrative where investors say, ‘Let’s wait to see how this shakes out because we actually don’t know what the future brings,'” she told B-17.

McKibbin wouldn’t comment on Harris’ immigration policies, as she was not the Democratic candidate when he conducted much of his research on the topic. Trump bashes her for being light on policy details and many voters also say that they need to know more about her specific plans.

Still, Edelberg said that Harris’ published proposals are “way more modest,” meaning they’d have a smaller economic impact.