Trump’s mass deportation plan could wreak havoc in the fight against inflation

Harris supports the bipartisan border security bill that failed to pass Congress this year. It would have provided more funding to detention centers and adopted stricter measures for asylum seekers, among other things. Neither the Harris nor Trump campaigns responded to Business Insider’s request for comment.

In addition to presenting significant humanitarian concerns, economists fear that Trump’s proposed mass deportation would be highly inflationary, in part because of 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 steady rate, the economy takes that growth “in stride.” As there are more people willing to work, there are more people demanding goods and services. These two factors should, in theory, balance and allow growth. Evidence from earlier this year indicates that immigration is a net benefit to 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 Peterson Institute for International Economics, said immigration is a natural part of economic growth. Both he and Edelberg said a sudden mass deportation would destroy the labor supply and, in turn, the ability to make goods.

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

“It’s pretty clear to me that, all else being equal, you reduce the supply of labor very sharply and you’re going to get an increase in inflation because of rising prices,” Edelberg told Business Insider. – It’s relatively simple.

The overall calculation, however, is not quite so simple. Edelberg said mass deportations would also lead to a sharp drop in consumer spending, which would happen in “geographically concentrated areas where those immigrants lived.”

Imagine an entrepreneur who built single-family homes to accommodate a booming immigrant population in their town. If these people were suddenly deported, the contractor would be stuck with all these homes in one area.

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

McKibbin 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, chief economist at the Economic Policy Institute, a union-funded think tank, wrote in June that a mass deportation would create particularly severe bottlenecks in the food supply chain. He added construction to the list of highly vulnerable sectors in an emailed statement to Business Insider and said “upward price pressure could be significant and quite long-lasting.”

And while ordinary Americans bear much of the burden of inflation — at the grocery store, at the gas pump, at the day care center — investors would also be adversely affected by mass deportations. McKibbin said 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 get fewer workers and the machines are run less often, the return on capital will be lower,” he said. Shareholders may have more chances to invest their money abroad.

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

“It’s not hard to learn a narrative where investors say, ‘Let’s wait and see how it shakes out, because we really don’t know what the future holds,'” she told Business Insider.

McKibbin would not comment on Harris’ immigration policies because she was not the Democratic nominee when he conducted much of his research on the issue. Trump chides her for being light on policy details, and many voters also say they need to know more about her specific plans.

However, Edelberg said the proposals published by Harris are “much more modest,” meaning they would have less of an economic impact.