Immigration crackdown

Many of us have been following the inflation data closely for evidence of Trump’s tariffs. Along with most other economists I have been somewhat surprised that we haven’t seen more evidence to date.

One thing we can say based on the evidence, is that exporters are not eating the tariffs, as Trump promised. The data on import prices, which do not include the tariffs paid on goods, shows non-fuel import prices rose in both April and May.

The index for non-fuel import prices for May was up 1.7 percent from its year ago level. By comparison, in May of 2024 the year-over-year increase was just 0.5 percent. We will have to wait to see the extent to which the tariffs end up leading to lower profits for importers and retailers, as opposed to higher prices for consumers, but it’s clear that the exporters are not paying them.

Just as we are waiting for more evidence on where the tariffs are hitting, we are also waiting for clearer evidence of the impact of Trump’s mass deportation policy. While the pace of arrests and deportations has picked up sharply in the last month, the bigger effect is likely the fear that this process has created among immigrants, including many who are here legally or are even US citizens.

With ICE officials saying that they are not subject to standard legal procedures, in terms of obtaining warrants, identifying detainees, and allowing access to lawyers and family members, millions of non-white people are scared to go out in public. This is especially true in places where the crackdowns have been most intense, like Los Angeles, but there are also reports from farmers across the countries of people not showing up for work, presumably because they fear an ICE raid.

We may see some effects of these fears on both the consumption and employment sides of the economy. On the consumption side, there are anecdotal accounts of businesses in immigrant neighborhoods, like restaurants and barber shops, being nearly empty. These businesses are not a large share of the total economy, but the fear of many immigrants to carry on their normal lives may show up in categories like restaurant sales in June, especially when we have data for states and cities that have been especially hard hit.

We may also soon see some impact on prices. Again, we only have anecdotal evidence at this point, but if migrant farmworkers are scared to go to work, we will see many crops rotting in the fields. This will start to show up in higher food prices starting in July and August, when we would ordinarily be seeing recently harvested fruit and vegetables showing up in supermarkets. This impact will be compounded by Trump’s tariffs. For example, Mexican tomatoes, which now account for 70 percent of domestic consumption, are now expected to face a 20 percent tariff starting in July.

The loss of immigrant labor may also be a factor in the decline in housing starts, which fell 9.8 percent in May, tying its lowest level since the pandemic recession. The monthly data are erratic and there are other factors, like high mortgage rates and economic uncertainty, that have also dampened starts, so the impact of the immigration crackdown is not clear.

On the employment side, we are likely to see some effect in the sectors where undocumented workers are most heavily concentrated, notably construction, hotels and restaurants, and home health care, as well as some sectors of manufacturing like apparel and food processing. Here also the effects will vary hugely by state and city. (Farmworkers are not included in the establishment employment data.)

Excerpted: ‘When Will Trump’s Immigration

Crackdown Show Up in the Data?’. Courtesy: Counterpunch.org