Trump's 'Zero-Tolerance' Immigration Policy, Tax Cuts Are Destroying the U.S. Economy; President Trump Claims This Is "The Best Economy in the History of Our Country." So Why Are His Own Policies Wrecking It?

By Saporito, Bill | Newsweek, June 29, 2018 | Go to article overview

Trump's 'Zero-Tolerance' Immigration Policy, Tax Cuts Are Destroying the U.S. Economy; President Trump Claims This Is "The Best Economy in the History of Our Country." So Why Are His Own Policies Wrecking It?


Saporito, Bill, Newsweek


Byline: Bill Saporito

Like five of his modern predecessors, President Donald Trump inherited a growing economy when he moved into the White House last year--indeed, a record expansion from the depths of the Great Recession. But mere expansion was not "big league" enough for Trump. He promised to supercharge the economy, and, after Republicans passed a $1.5 trillion stimulus package, the task looked easy. His top economic adviser, Larry Kudlow, predicted "3 to 4 percent economic growth for as far as the eye can see." The president was no less gushing. "The Economy is raging, at an all time high," he tweeted, "and is set to get even better."

But here's the thing: It is not. And may not.

Although unemployment is low, inflation remains tame and gross domestic product (GDP) growth could, as Trump promised, exceed 3 percent for the second quarter, some economists have begun to dial back their rosy estimates. The reason: Trump himself. His "America First" agenda appears to be defeating his own goals. Policies such as corporate tax cuts that are designed to expand employment and investment rub against others that tend to do the opposite. (And that was before the president stoked an international trade war by imposing tariffs on foreign steel and aluminum and, earlier in June, insulted the prime minister of Canada, the country's second largest trading partner, calling him "very dishonest and weak.")

Take immigration. In the broadest terms, our economy needs population growth to fuel GDP. The math is simple. Consumer spending makes up nearly 70 percent of GDP: the more consumers, the more consumed. Yet the population is growing at less than 1 percent annually. If you choke off immigration, like imposing a "zero-tolerance" policy for people who enter the country illegally, growth becomes constrained, fewer households are formed, fewer goods are sold, and fewer jobs are created. The birth rate in the U.S. is at a record low, according to the Centers for Disease Control and Prevention, meaning we aren't producing enough workers to replace the baby boomers who are now retiring. And in their retirement years, boomer spending decreases--until it ceases.

That's just the demand side. On the supply side, places such as Branson, Missouri, are struggling to find enough foreign workers for the busy summer tourist season because H2B visas (which permit employers to hire foreign workers, often seasonally) have been delayed or denied. What a delicious irony: A supposedly all-American resort town doesn't have enough immigrants to keep the music halls, restaurants and hotels fully operational. Seaside resorts from Maine to Miami have reported similar shortages.

Likewise, the housing industry can't build enough homes to meet demand. Trump's recent move to end Temporary Protection Status for nearly 60,000 Hondurans, for instance, directly affects construction in Texas and Florida. In Texas, 24 percent of Honduran TPS holders work in construction; in Florida, the figure is 29 percent, according to UnidosUS, a Latino civil rights and advocacy organization. That means new homes are more expensive because the inventory is low. Also boosting the price are rising mortgage rates, which have gone up as the Federal Reserve starts "normalizing" interest rates, and Trump's tariff on Canadian softwood, which has increased construction costs by $6,000 per home.

Meanwhile, U.S. immigration authorities have staged large-scale raids on the businesses of, among others, landscapers and meatpackers, rounding up hundreds of employees who lack proper work papers. While the visa restrictions and workplace raids fulfill Trump's promise to crack down on undocumented immigrants, the National Federation of Independent Businesses reports that more than one in three small businesses have job openings they can't fill, and nearly a quarter of them say it's their No. 1 problem. Ours too. The labor supply is projected to grow at just half a percent annually, according to the Congressional Budget Office; that's another foot on the GDP brake. …

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