Deutsche Bank has indicated that the ongoing immigration crackdown and subsequent decline in numbers is causing a more severe negative supply shock to the economy than the tariffs imposed by President Donald Trump.
What Happened: Since Trump’s inauguration, monthly encounters at the Southwest border have dropped sharply to 12,000, compared to an average of 200,000 between January 2022 and June 2024, reported Fortune. his represents a more significant negative supply shock than the impact of Trump’s tariffs, the bank stated.
George Saravelos, head of FX research at Deutsche Bank, said in a note on Friday, “While everyone is focused on the impact of tariffs, the real story for the U.S. economy is the collapse in immigration: down more than 90% compared to the run rate of previous years, equivalent to a slowing in labour force growth of more than 2 million people.”
Deutsche Bank cautions that declining immigration could have broader effects on financial markets, including added pressure on the dollar, which is already feeling the impact of Trump’s aggressive tariff policies.
The bank also notes that the immigration crackdown may give the Federal Reserve further reason to postpone interest rate cuts, since a slower-growing workforce reduces the need for increased hiring to accommodate extra labor supply.
“If recent immigration trends continue, it must follow that over the course of the year the reverse will happen. As the 2022 energy shock showed, a negative supply shock is not good news for a currency.” cautioned Saravelos.
Why It Matters: The analysts’ warning comes in the light of Trump’s deployment of National Guard troops to California following two days of immigration raid protests, claiming the demonstrations obstructed federal law enforcement and suggesting they could be a “form of rebellion” against U.S. authority.
President Trump’s immigration policies have been a focal point of his administration. Earlier this month, he barred nearly all immigration and travel from 12 nations, citing poor vetting and terrorism threats. This move followed the introduction of a new 3.5% tax on remittance transfers from non-citizens, a measure that drew criticism for disproportionately affecting poor migrants.
These policies, along with plans for mass deportations, have drawn attention from economists and investors. They warn that these measures could significantly impact the U.S. labor market, inflation, and even the Federal Reserve’s decisions on interest rates. While tariffs have been a significant focus in financial discussions, the collapse in immigration could have an even more substantial effect on the economy.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
