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Your guide to what Trump’s second term means for Washington, business and the world
The writer is an FT contributing editor, chief economist at American Compass and writes the Understanding America newsletter
The Trump administration’s immigration policy has assumed the “will they, won’t they” character of a mediocre romantic comedy, oscillating between aggressive enforcement raids one day and contemplation of widespread amnesty the next. What’s needed, desperately, is long-term commitment.
Its resemblance to the trade agenda is uncanny, in the impressive early successes, the problem of ongoing instability, and the not yet fully realised potential for setting the US on a better economic course. In both cases, what matters most is not swift and harsh retaliation for past wrongs, but clarity for the future — initiating investments today that will yield returns for years to come.
These challenges are more apparent in the trade context. The surprise at how quickly President Donald Trump imposed stiff tariffs even on close allies has been exceeded only by surprise at their early success and limited downside. Economists lectured that tariffs would only strengthen the dollar, negating their own effect. The dollar has weakened. Consumers will pay the price, they said. Few price increases have reached consumers at all. The EU and Canada have caved on their digital services tax. Mexico is pushing China out of its supply chains. Taiwan Semiconductor Manufacturing Company is shifting capital out of Japan and into the US.
But fears rightly remain about the costs to come from Trump’s volatile approach and whether benefits dependent on long-term investment will arrive. Success depends upon certainty about how international trade will operate in the future.
If a tariff starts at zero but companies believe it will reach 50 per cent in a few years, they will invest as quickly as if the rate starts at 50 per cent. But starting the rate at 50 per cent, and leaving companies to guess what it will be in the future, maximises the disruption and creates the weakest incentive.
Immigration is more complex, but the challenges are the same. For decades, US economic policy prioritised the steady incoming flow of cheap labour — both legal and illegal — to the great benefit of employers hoping to pay the lowest possible wages. This strategy delivered both high profits and cheap goods and services, but undermined opportunities for US workers, discouraged capital investment and imposed enormous costs on communities.
There was no alternative, the American people were told. Regardless of the law, immigrants would continue to pour into the country until “root causes” like climate change and political instability were resolved; if their numbers decreased there would be no one to pick the crops and clean the hotel rooms. Here too, Trump has proved the experts wrong. Securing the border was a straightforward matter of law enforcement and deterrence.
In May, the US Customs and Border Patrol did not release a single “illegal alien” into the country, down from more than 60,000 in May last year. An estimated 1mn illegal immigrants have departed or been removed. From January to June the employment level of native-born workers rose by more than 2mn, while the foreign-born level fell by more than half a million, reversing the trend of the past five years, during which foreign-born workers accounted for nearly 90 per cent of job gains. Crops continue to arrive on store shelves.
But securing the border is only the first step in a successful immigration policy. Here too, what matters is that illegal immigrants believe they have no choice but to leave, and companies believe they have no choice but to begin investing towards a smaller, more productive and better paid workforce.
Just as the tariffs helped shake trading partners from their slumber and give credibility to US demands, immigration raids and harsh deportation processes have surely helped in deterring illegal border crossings and encouraging voluntary departures. But if they remain the centrepiece of the agenda, costs will rise and benefits will be slow to materialise — especially if the administration offers amnesties and new temporary programmes for as many workers as employers say they need.
With the border secure, the administration should focus on a predictable process of enforcement against employers of illegal immigrants. Workers who have been in the country for years and come forward voluntarily should receive short-term work permits that give both them and their employers a chance to prepare for their eventual departure. Programmes like the H-2A visa for temporary agricultural workers should be phased down in parallel and the federal government should co-sponsor industry efforts to develop automation technology that US workers can use instead.
Legislation will be key. Reliance on executive authority has not only created legal problems for both the trade and immigration agendas, but also left employers, immigrants and trading partners wondering whether any of the policy will be permanent.
Duly enacted laws must solidify long-term frameworks to lock in the desired transitions. With Trump’s continued freelancing as the alternative, enthusiasm should grow for reaching a more permanent settlement. If it helps cajole action from Congress, these chaotic first months will have been well worth the trouble.