As part of FSG’s series on the impact of the US presidential election, this post will conduct a deep-dive on the impact on immigration, particularly as it pertains to Latin America. Given the likelihood of our four election scenarios, we will focus in particular on our base case for a Clinton or Trump victory combined with a Republican congressional majority.
Clinton victory with a Republican-controlled Congress: Stalemate continues
In the event of a Clinton victory, the overall immigration stance of the United States is unlikely to change substantially compared to its current status under President Obama. During the presidential campaign, Clinton has expressed her commitment to defending President Obama’s executive actions, namely DACA and DAPA, and has promised to introduce comprehensive immigration reform and pathway to legitimate citizenship within her first 100 days in office. As part of her plan, she has advocated for the creation of an Office of Immigrant Affairs to help support immigrant integration and promote naturalization in the country. Her pro-immigration program would nearly double the number of legal immigrants to the US and expand existing employment-based immigration.
However, working with a Republican-controlled Congress, it is unlikely that Clinton will be able to successfully pass many of her reforms, reminiscent of the political gridlock that Obama has faced while in office. Thus, the extent of Clinton’s policy enactment would likely be similar to that of Obama’s, as he has had to rely mainly on executive action in order to advance immigration policy. And yet, Obama has even faced pushback from the Supreme Court in trying to implement executive actions to provide legal protection to certain categories of illegal immigrants, making the Supreme Court an additional hurdle that Clinton may encounter when trying to pass any immigration reform action.
On the other hand, an issue on which Clinton and Congress are likely to agree is the promotion of local hiring efforts. Clinton has suggested a $10 billion investment to promote local manufacturing jobs in the US, under a plan called Make it in America, which will be largely paid for by revenues from her proposal to rescind tax breaks from companies that outsource jobs abroad. Under this plan, the US government would work to recruit and ease the path for companies to bring jobs back to the US, which could assuage interest groups and, thus, alleviate pressures on government to take drastic action against immigration to the US.
Trump victory with a Republican-controlled Congress: Aggressive enforcement
Donald Trump has been much more vocal than Clinton on the issue of immigration during the presidential race. For instance, he has expressed his adamant stance against illegal immigration, suggesting a significant increase in spending on the border fence, plus the infusion of resources to the border patrol. He has also laid out a bill to combat illegal immigration that disincentivizes undocumented immigrants from entering the US, which includes mandatory federal prison sentences.
It is important to acknowledge the pace of implementation of Trump’s immigration agenda. While his plan to build a wall with Mexico would take several years to complete given the need to scope, fund and build, his plan to enhance immigration enforcement can be implemented more quickly. Even so, expanding deportation efforts would require the hiring and training of Immigration and Customs Enforcement agents, which would push the economic effects of his immigration agenda into 2018 and beyond.
With a supportive Republican Congress, the US could pass an enforcement-first set of measures in addition to Trump’s efforts to boost border security, while implementing several policies that force illegal immigrants to self-deport. Moreover, a President Trump could quickly, easily and legally roll back any or all of Obama’s executive orders, including those on immigration enforcement, as well as DACA and DAPA.
Implications for Latin America
- LATAM growth derived from exports to the US
Clinton + Republican Congress: status quo likely. Given FSG’s base-case scenario of a Clinton Presidency and Republican Congress, it is unlikely that much would change in the short-term with regards to immigration reform, with the possibility of limited executive action to support DREAMers and protect family-based immigration.
Clinton + Democratic Congress: US demand (and ability of LATAM to tap into it) likely to rise. Clinton supported the 2013 immigration reform act passed by the Senate, and her current comprehensive immigration reform is similar to the 2013 bill (protect family-based immigration, expand existing employment-based immigration, expand the number of temporary immigration visas for skilled and unskilled workers, and include a path to legalization for undocumented immigrants living in the country). An analysis by the Congressional Budget office stated this particular legislation would increase real GDP by 3.3% in 10 years and create close to 6 million more jobs, and that the increase in migration would raise the demand for goods and services.
Additionally, Moody’s Analytics considered the implementation of Clinton’s proposed agenda at face value and found that up to 10.4 million jobs would be created during her term. “Immigration reform provides the largest support to long-term growth by increasing total factor productivity… studies have shown that having more skilled immigrants increases total labor productivity,” which is expected to be approximately 70 bps higher as a result of increased immigration by 2026. Clinton’s plan to increase the number of documented immigrants would boost projected average GDP growth by 0.3% per year – from 2.0 to 2.3% in the next ten years. As such, it can be reasonably expected that a similar reform under Clinton would have comparable effects: a boost to employment, income, investments and consumption, contributing to long-term economic growth.
Trump + Republican Congress: Trade (and ability of LATAM to tap into it) likely to decline. In contrast to Clinton, Trump’s immigration policy plan would have a drastically different effect on the economies of Latin America and the US through various means. For instance, likely changes to US trade policy under his administration, such as the renegotiation or termination of free trade agreements, would have inevitable consequences on the number of work permits granted by the US and, thus, total migration inflows. According to the Committee for a Responsible Federal Budget, Trump’s restrictive immigration plan would have an opposite effect of Clinton’s, resulting in a 0.3% drop in annual growth in the US to 1.7%, while Moody’s Analytics predicts that a Trump presidency would lead to 3.5 million fewer jobs and a rise in the unemployment rate to as high as 7.4%, compared to today’s 5%.
- Remittance income flowing from US to LATAM
Clinton + Republican Congress: Remittances likely to maintain current growth rates. Under FSG’s base-case scenario, remittance income flows are likely to continue their current trajectory as few changes to immigration reform are expected.
Clinton + Democratic Congress: Remittances increase. Given Clinton’s agenda to expand legal immigration to the US, remittance flows to Latin America are expected to increase as more employed immigrants send money to their home countries.
Trump + Republican Congress: Remittances decline. If there are fewer employment opportunities in the US for immigrants, annual remittances could be compromised. Remittances currently comprise a significant portion of many countries’ economies and are an important driver of growth, particularly in Mexico and Central America, where they comprise as much as 16% of GDP. In fact, each year Latin America as a whole receives more than US$65 billion in remittances sent from migrants in the US, which could be in jeopardy if Trump advances his threats to tax or even garner remittances in order to pay for his proposed border wall, which he is legally permitted to do. To provide perspective, remittances are important to the extent that Mexico actually received more money in remittances last year than it did from oil revenues. As such, a Trump victory and successful execution of his pledges could lead to an overall drop in remittances to many LATAM countries, with an increase in money sent through informal channels that are more difficult to tax.
3. Mexico/Central America unemployment drain on government budgets if undocumented immigrants in the US are deported
Clinton + Republican Congress: unlikely to change in the short term. As immigration policy is unlikely to change under FSG’s base-case scenario, it is unlikely that there will be an influx of undocumented immigrants in the US that are deported to their home countries. However, looking to 2018 and 2020, potential immigrants could become nervous about the solidity of their future status as the GOP continues to denounce immigration and vow to fight on this ground.
Clinton + Democratic Congress: Slightly reduced drain on government budgets. Clinton’s plan to expand legal immigration to the US would likely lead to reduced pressure on government budgets in Mexico and Central America. Not only would there be fewer unemployed persons in their home countries, but the inflow of remittances would continue to support these economies.
Trump + Republican Congress: Sustained unemployment drain. Trump’s plan to deport an estimated 11.3 million undocumented immigrants -aside from costing the US upwards of $400 billion to enact- would entail a reduction of 5.1% of the US’s labor force being sent back to their home countries. This massive deportation would place long-term pressures on the economies and public systems of their home countries, not only due to the surge in population, but because many of these migrants move to the US due to lack of employment opportunities in their home countries and in order to send financial support home in the form of remittances.
Implications for multinationals
Depending on the winning candidate, multinationals will need to consider the short- and long-term impacts to their business that could result from changes to immigration policy in the US.
- MNCs could see more limited management mobility, confronting greater difficulty to rotate management talent across borders, limiting the efficiency of their operations in many emerging markets, and resulting in a high premium on specialized skills due to more expensive access to specialized talent.
- Pressures on remittances from the US could lead to changes to demand in countries where remittances are major drivers of consumption and growth.
- Restrictive immigration could eventually place pressure on government spending and the provision of public services, as the cost of social services would significantly increase if people cannot emigrate, thus hurting the business prospects of some B2G companies.
Actions to take
As multinationals prepare for the impact of the US elections, particularly under a Trump victory, they may need to reconsider their organizational footprint in the region. Moreover, they should consider incorporating workforce planning into strategic planning processes, as increasingly restrictionist immigration and labor force policies could create new pressures to change long-term staffing decisions, particularly for hiring expatriates and immigrants. Additionally, MNCs may need to prepare for shifts in their customer segments and resultant changes to domestic demand for their products or services in the medium- to long-term, particularly if the US implements significant changes to both trade and immigration policy.