The Economic Fallout of Trump's Mass Deportation Plan

Donald Trump will return to the White House as the 47th President, with plans to initiate the largest mass deportation campaign in US history. This initiative is expected to have profound economic consequences, including labor shortages, higher labor costs, and increased operational expenses within the US, along with heightened pressure on Mexico’s welfare systems and labor market. The execution of this large-scale deportation plan would not only increase US federal expenses but also create additional strain on Mexico’s resources, particularly related to the reintegration of deported individuals into the workforce.

Trump's victory in the 2024 election, in which he secured over 270 Electoral College votes, defeating Democratic challenger Kamala Harris, has reignited concerns about his immigration policies. His rhetoric, reminiscent of his 2015 promise to build a “great wall” along the U.S.-Mexico border, is now increasingly focused on deporting immigrants already living in the U.S. This shift in emphasis signals a more aggressive stance on immigration enforcement, potentially signaling a return to his hardline approach to undocumented immigration. Reports from The Guardian highlight this intensification of deportation threats, marking a significant departure from previous policies.

According to the Pew Research Center, nearly 4 million of the 11 million undocumented immigrants in the US in 2022 were from Mexico. Given Mexico's substantial presence within this demographic, Trump’s policies are likely to have extensive consequences not only for this group but also for the broader socio-economic landscape of the country. The US economy is particularly vulnerable to these policy shifts, as many industries have come to rely on immigrant labor. 

For years, industries like agriculture, construction, and services have heavily relied on undocumented workers, with employers prioritizing immediate labor needs over scrutinizing immigration status, according to the Center For Migration Studies (CMS). If implemented, a mass deportation policy would disrupt this workforce, leading to significant challenges in terms of operational costs and labor availability. The US construction industry, which accounted for approximately 4.5% of the GDP in 2024, according to Building Radar, would be especially vulnerable to the sudden loss of this critical labor force.

Beyond the labor market disruptions, the US would also incur massive federal costs. Estimates from the American Immigration Council suggest that a one-time mass deportation operation could cost at least US$315 billion, not including long-term expenses related to ongoing deportation efforts. The scale of this operation would require substantial investment in enforcement, processing, transportation, and detention infrastructure, pushing federal spending to unprecedented heights. This surge in federal expenditures could intensify budgetary challenges and strain public resources, potentially affecting other government agencies and public institutions.

As a result, this could carry political and social ramifications and could have lasting effects on public sentiment and political dynamics, especially in key swing states with large immigrant populations. This could deepen political polarization around immigration, potentially influencing voter behavior and shaping the political landscape in upcoming elections.

The cascading effects of these policies are expected to significantly impact Mexico's labor market, welfare systems, and public services, requiring careful management of both human and economic resources. As deported workers return, many will likely reenter industries such as construction, agriculture, and services, where the competition for jobs is already fierce. Increased unemployment or underemployment could create social unrest, further complicating Mexico’s post COVID recovery efforts.

The Mexican construction sector, which employed 8.77 million people as of 2Q24, has an overwhelming male workforce, with low wages of US$425 per month, according to the Mexican Government. This could exacerbate the oversaturation of the labor market, further driving down wages and employment opportunities for local workers.  According to the International Labour Organization (ILO), wage inequality is already high in Mexico, particularly in blue-collar sectors, and an influx of additional workers could exacerbate this disparity.

Legal and administrative barriers will present challenges for companies seeking to hire deported workers. Mexican labor laws, which mandate benefits like paid leave, severance pay, and bonuses, could dissuade businesses from employing deported individuals, especially given the added complexity of setting up payroll and tax systems. According to Velocity Global, navigating these requirements can be cumbersome, and without specific incentives or simplified processes, companies may hesitate to hire deportees. This could put additional pressure on Mexico’s fiscal policy, as companies may face increased operational costs due to compliance with labor laws and taxes.

Ultimately, Mexico will face a delicate balancing act in managing the influx of deported workers. The pressure on local labor markets and public services could become unsustainable if not properly addressed. Without strategic planning and policy adjustments, both Mexico’s workforce and its broader economic system could experience significant challenges, with potential long-term repercussions for social stability and economic growth.