Borders to growth
The strength of the US economy has been a constant source of surprise in recent years: after solid growth of 2.5% in 2023, expectations for 2024 have been regularly revised upwards and now stand at 2.4%. During the same period, the long-term growth prospects of Europe and China have, in contrast, been disappointing.
Some of the reasons for this blessed state of the US economy are widely known: high labour productivity, domination in digital innovation, considerable fiscal stimulus, flexibility of the labour market, high propensity to consume, etc.
But one factor is more controversial – the economic impact of immigration, whether legal or illegal. Part of the forthcoming US presidential election will turn around this divisive subject, which has moved to the forefront of US preoccupations in the last three months according to a recent Gallup poll.
Yet economic data is unequivocal – the US miracle would fade without immigration. Firstly, according to the US Census Bureau, the country’s population would immediately decline, limiting its growth potential, as is already the case in Japan, Germany, Italy, China…and possibly soon in France, given the recent collapse in its birth rate[1].
In addition, according to the Congressional Budget Office – a particularly insightful forecasting body given its bipartisan status – projected immigration for the coming decade should strengthen the US labour force by 5 million workers. These workers will, according to the same source, contribute USD 7 trillion to GDP growth, and USD 1 trillion in income tax – an essential inflow for a state struggling with a considerable debt burden.
Lastly, some studies show[2] that immigration post-Covid – which showed a very sharp rise with the arrival of Joe Biden in power – helped relieve pressure on an extremely tight labour market, which would otherwise have contributed to even higher inflation through more expensive labour costs. So, immigration was indirectly responsible for the US Federal Reserve not having to tighten financial conditions further for all Americans.
The other side of the economic issue, consumer spending, also benefits from the influx of migrants. For example, Time Magazine estimates that immigration will add 0.2% to consumer spending growth this year[3].
Whilst this data supports the idea that the US miracle owes much to immigration – which has been the case since the birth of the country – other data indicates that this a controversial issue. In particular, according to an article by the American Economic Association[4], the influx of migrants tends to strengthen competition between migrants and non-migrants for access to low-skilled jobs. So more growth, but at the price of more intense competition between workers.
Of course, other basic considerations – cultural, religious, geopolitical and social – play a role on the issue of borders. But purely on the basis of its economic impact, the issue of migration policy that will emerge from the forthcoming US election will play a decisive role in the fate of the US economy – with a knock-on effect for the global economy.
Final version of 3 May 2024 – Alexis Bienvenu, Fund Manager, La Financière de l’Échiquier (LFDE)