Biden's Executive Order: A Double-Edged Sword For The Economy?

By Tommy Wilson | Wednesday, 05 June 2024 01:50 PM
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President Joe Biden's recent executive order, which imposes stricter asylum restrictions at the U.S.-Mexico border, could have a dual economic impact, according to economists and trade analysts.

The new policy could potentially tighten labor markets while simultaneously easing supply chain bottlenecks between the two nations.

The executive order will temporarily prevent undocumented immigrants who enter the U.S. via the Southern border from seeking asylum, except in certain circumstances. It will also expedite the deportation process for these individuals. The restrictions will be activated when the average daily number of migrant encounters surpasses 2,500 over a week. The policy will be discontinued two weeks after the government determines that the daily average of migrant encounters has dropped below 1,500 for seven consecutive days.

Department of Homeland Security officials have reported that the current average number of encounters with migrants is approximately 4,000 per day. Consequently, a senior administration official has announced that the temporary ban will be "in effect immediately."

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Despite the temporary shutdown, trade and travel will not be obstructed. Legal immigrants will still be permitted to apply for and receive asylum. However, economists and industry representatives have suggested that the policy could have potential implications for the U.S. labor market, trade, supply chains, and inflation.

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Ernie Tedeschi, economics director at Yale University's Budget Lab and former chief economist at the White House Council of Economic Advisors, said, "This is a modest move as far as immigration changes go, so I think it would have only a small effect on job growth and economic expansion."

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The executive order is also intended to serve as Biden's political response to public dissatisfaction over the influx of undocumented immigrants. This issue has become a potential voter liability ahead of Biden's probable November rematch against former President Donald Trump.

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However, border policy also influences business operations, including trade, hiring practices, and consumer goods pricing, all of which impact the health of the U.S. economy.

Experts suggest that the short-term economic impacts will be relatively minor. Specifically, the new asylum restrictions could slightly slow U.S. labor market growth. However, they could also help alleviate supply chain congestion at the border and streamline trade with Mexico.

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If the new border policy has any negative economic effects, experts predict that these will most likely be felt in the labor market.

Tedeschi said, "I'd expect [job] numbers to cool a tiny bit. I'd also expect many immeasurable effects: say, a business finding it a bit harder to find the workers they need to open a new location."

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According to an April analysis by Tedeschi, immigration has added 2 million workers to the U.S. labor supply since 2019. Without immigrants, he estimated that the U.S. labor supply would have decreased by 1.2 million during that period.

Brookings Institution economist Tara Watson said, "A steady influx of immigrants is critical to ensuring the U.S. labor force can continue to grow."

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Immigrants have also significantly contributed to the U.S.' post-pandemic economic recovery, which has outpaced that of other developed nations, despite various challenges.

Tedeschi estimated that immigrants accounted for one-fifth of the pandemic growth in U.S. gross domestic product.

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Regarding the potential impact on inflation, Tedeschi explained, "Immigration has an ambiguous effect on inflation, since immigrants expand supply but also bring added demand as well."

Some experts suggest that the executive order could actually reduce costs by improving the U.S.-Mexico supply chain. Border shipping sometimes becomes congested because Customs and Border Protection (CBP) agents are overwhelmed by the number of migrants they need to process.

Jerry Pacheco, president of the Border Industrial Association, a New Mexico trade group representing over 100 businesses that rely on Mexican producers, said, "When you slow down that logistics chain, it costs everybody money."

These increased producer costs can have a ripple effect throughout the entire economy.

Pacheco said, "It's like a hot potato. It's passed on from the logistics companies to manufacturers and manufacturers pass it on to us, consumers. That has a profound negative impact on our economy."

Biden's executive order could help alleviate some of these supply chain issues. By limiting the number of migrant crossings, CBP agents would have more time to facilitate faster shipping with Mexico.

Pacheco said, "This probably should have been done a year ago, two years ago."

Despite some potential economic benefits of Biden's border policy, Pacheco believes that the best border policy for the economy and the labor force would involve a long-term solution to the nation's "broken immigration and visa system."

Watson, of Brookings, concurred, stating, "The better way to manage the border situation would be to create more regular legal pathways."

In the interim, Biden's new executive order is expected to have milder economic and humanitarian effects than the complete border shutdown and stringent deportation strategies proposed by Trump and some Republicans.

Experts warn that harsh immigration policies could fuel inflation, which the Biden administration has been striving to control.

Pacheco said, "I used to always chuckle when former President Trump would say that," referring to Trump's pledge to shut down the border. "I mean, that would be like taking a shotgun, not a pistol, and shooting ourselves in the kneecap."

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