JACKSON HEWETT: Donald Trump’s immigration crackdown hides looming economic shock

Amid the fire and fury in Los Angeles, the Trump administration has vowed it will not turn back from its promise to radically reshape the US workforce.

It’s the third leg of his plan to make America great again, alongside tariffs on imports and tax cuts.

But is Donald Trump doubling down on another policy of economic self-harm?

Prior to the election, one of Australia’s most influential economists, Warwick McKibbin, warned that mass deportations could slash US GDP by 7.4 per cent and drive inflation 10 per cent higher by 2028, an act with global reverberations.

As Immigration and Customs Enforcement ICE units swept through Los Angeles, meeting violent resistance along the way, the images showed a country in chaos, at least between a Republican Federal Government and a Democratic state.

ICE raids are underway in other cities too, detaining people it deems illegal and pressuring others into self, deportation. Nine thousand active, duty troops have been deployed to the southern border.

The Trump administration’s motto, as White House deputy chief of staff Stephen Miller put it, is “America is for Americans and Americans only.”

Mr Trump made it a central election issue, declaring in September he would “carry out the largest domestic deportation operation in American history.”

But it’s not just so-called illegals he’s targeting. International students have had their visas cancelled en masse, and the administration may scrap the right for foreign graduates to remain in the country for practical training.

The rationale is that deporting the unauthorised will open up jobs for American workers. But leading economic research suggests the opposite.

Modelling by Mr McKibbin and his team at the Peterson Institute of International Economics (PIIE) shows deporting 8.3 million undocumented workers would cut GDP by 7.4 per cent by 2028, wiping out five years of economic growth. Even deporting 1.3 million reduces GDP by 1.2 per cent.

During the Obama era, 500,000 deportations under the Secure Communities program allowed researchers to compare the impact county by county. The results were damning.

“Mass deportation eliminated US jobs, I don’t mean Americans lost jobs and found new ones later. I mean total jobs went down,” said PIIE senior fellow Michael Clemens.

“It deterred business formation and caused small business closures, especially those dependent on immigrant labour. Deportation hollowed out business activity, destroying more native jobs than it created.”

Mr Clemens said this reflects a fundamental misunderstanding of the economy: migrants aren’t substitutes, they’re complements. In construction, for example, removing immigrant workers like framers and tilers meant electricians and project managers couldn’t do their jobs.

It caused an estimated 2000 fewer new homes per state per year. That’s a supply shock in housing, and is expected to have similar effects across the economy.

Agriculture is hit first and hardest. McKibbin’s modelling shows deporting 1.3 million unauthorised workers cuts the sector’s workforce by 2.5 per cent, pushing up prices. In the full, deportation scenario, output collapses and farm investment dries up.

“Seventy-five per cent of the agricultural labour force, and thus our food security, rests on immigrant shoulders,” Mr Clemens warns.

As America tries to re-shore industries, it risks losing the very workers it needs.

Immigrants make up over 20 per cent of the manufacturing workforce and nearly half in sectors like meat processing. Mr McKibbin’s modelling shows durable manufacturing output falls sharply as labour shortages bite, with employment dropping up to 3 per cent by 2028.

Mining and energy face similar pressures. Food processing, textiles, aged care, logistics, and hospitality also struggle as costs rise and staff disappear.

Even Silicon Valley isn’t immune.

“What I wish more Americans understood is Silicon Valley doesn’t just run on foreign scientists. It runs on childcare, construction, delivery, security, and farm workers. They are making the salads the scientists are eating,” Mr Clemens said.

The shrinking labour force is also making it harder for the Fed to read the economy at a critical time. With more than a million immigrants leaving the workforce since March, unemployment is staying low even as job growth slows, Bloomberg reports.

With deportations rising and legal immigration curtailed, the measured jobless rate no longer reflects the true state of the economy. It means the Federal Reserve has lost a key gauge. With unemployment low amid job losses, the Fed may not feel comfortable cutting rates for fear of stoking inflation.

“Any downturn would be deeper than it has to be,” said economist Mr Tang. “But the Fed just feels like it does not have a choice because if they move sooner, they risk giving up inflation credibility.”

That removes a key plank of support for the economy just as deportations, and potentially tariffs, bite.

McKibbin sees a world where US GDP is 10 per cent lower by 2028 as supply shocks ripple through the economy and foreign capital flows elsewhere. A Trump-proposed “revenge tax” of up to 20 per cent on foreign investment in the US would only worsen the effect.

A collapse in US GDP will be felt globally, hitting Australia’s key export partners in China and Southeast Asia and spreading inflation outward.

The domestic consequences are real, but the longer-term impact on America’s global standing may be even starker.

By targeting students and academics, the US risks losing the very people who have driven its global dominance. Half of all Fortune 500 companies were founded by immigrants or their children.

“Foreign students are the leading supply of high, skilled labour in some sectors. Over 20 per cent of venture capital, funded startups are founded by immigrants, and three, quarters of those arrived first as students,” Mr Clemens said.

And immigration has been propping up the US labour force for more than a decade.

“Without immigration right now, the US labour force would be shrinking rapidly,” Mr Clemens said citing US Census projections show that under a zero-immigration scenario, the working-age population would have gone into decline 15 years ago.

“Right now, in 2025, the workforce would be shrinking by 1 million employed workers per year without immigration,” Mr Clemens said.

Rather than making America great again, Donald Trump might be setting it back a generation.