BCA Research Challenges Assumptions on Trump’s Immigration Policies
BCA Research has challenged the assumption that Trump’s immigration policies will tighten the labor market and stoke inflation. While a smaller labor supply may be a likely outcome, the firm argues that it will also reduce labor demand. The analysts point out that immigrants’ contribution to aggregate demand goes beyond their spending on goods and services, and also includes spending on their behalf, such as access to emergency Medicaid services and benefits for US-born children.
The firm also highlights that the construction of multifamily housing to accommodate displaced housing demand can generate significant economic activity, with an estimated $40,000-$80,000 in additional construction per immigrant. Furthermore, BCA believes that the pace of policy implementation will also play a crucial role, citing that a swift deportation campaign is unlikely and any slower-paced reduction in immigration growth would likely reduce labor demand more than supply.
The firm also references the historical relationship between immigration and interest rates, noting that the US, with the highest immigration rates among G3 economies, has historically maintained the highest interest rates, while Japan, with minimal immigration, has seen the lowest rates. BCA concludes that a reduced immigration rate could lead to a lower equilibrium interest rate in the US.
Overall, the economic implications of Trump’s immigration policies are more complex than a simple tightening of the labor market, according to BCA Research. The firm believes that the broader impacts on demand and interest rates will shape the outcomes, rather than simply a tightening of the labor market.
