Markets respond to immigration policy and trade policy differently. Should they?

Summary

Marketplace Morning Report: Markets Respond to Immigration Policy and Trade Policy Differently. Should They?

Release Date: June 16, 2025
Host: Sabri Benishore (in for David Brancaccio)
Guest: Zeke Hernandez, Professor at the University of Pennsylvania's Wharton School
Podcast: Marketplace Morning Report by Marketplace

---

Federal Reserve's Dilemma: Balancing Inflation and Unemployment

Timestamp: 00:47 – 01:59

The episode opens with Sabri Benishore discussing the upcoming Federal Reserve meeting, which is pivotal in assessing the US economy's trajectory. The Fed is mandated to manage two critical objectives: maximizing employment and controlling inflation. Sabri introduces Julia Coronado, founder of Macro Policy Perspectives, to shed light on which of these objectives poses a greater risk to the economy.

Key Insights:

• Uncertain Risks: Julia Coronado emphasizes the Fed's uncertainty in determining whether inflation or unemployment is the greater threat. She notes, “They really don't know whether the greater risk to the economy is a slowdown from all of the things buffeting the economy... or higher inflation” [01:19].
• Impact of Tariffs and Oil Prices: Despite positive inflation data for May, the enduring effects of tariffs and the potential rise in oil prices introduce variables that complicate the Fed's decision-making process.

---

China's Economic Maneuvers Amid Tariffs

Timestamp: 02:13 – 02:41

Shifting focus to the global stage, Sabri explores China's economic response to the ongoing trade tensions. Despite a downturn in factory output, China's retail sector outperforms expectations, signaling a strategic pivot.

Key Insights:

• Fiscal Stimulus Efforts: Julia Coronado explains, “China is prepared for a drawn out battle on tariffs... by boosting their consumers with fiscal stimulus” [02:13]. This approach helps mitigate the adverse effects of tariffs on their manufacturing sector by stimulating consumer spending.
• Balancing Act: The combination of supporting consumers while facing manufacturing challenges highlights China's adaptive strategies in maintaining economic stability.

---

Immigration Policy and Market Reactions

Timestamp: 04:27 – 08:44

The conversation delves into the Trump administration's stance on immigration, juxtaposed against market responses compared to trade policies. Sabri introduces Zeke Hernandez to discuss the economic ramifications of stricter immigration enforcement.

Key Insights:

• Differential Market Reactions: Zeke Hernandez observes, “The markets... don't seem to be as concerned [with immigration policy]... It's almost seen as a social or cultural story. But you say it is very much economic as well” [05:03]. This contrasts sharply with the immediate market reactions seen with tariff implementations.

• Economic Contributions of Immigrants: Hernandez outlines five critical ways immigrants bolster the economy:

  1. Innovation
  2. Consumption
  3. Investment
  4. Talent
  5. Taxes

  He emphasizes, “If you were an investor or someone watching the market, you would react to these things” [05:26].

• Net Job Creation: Contrary to popular political narratives, Hernandez asserts that “immigrants are net job creators, not net job destroyers” [06:15]. This challenges the notion that reducing immigration preserves jobs for native-born Americans.

• Combined Economic Pressures: The simultaneous imposition of high tariffs and restrictive immigration policies poses a compounded threat, “you are increasing the price of intermediate and final goods and you are contracting labor supply” [06:15], leading to inflationary pressures and economic contraction.

---

Legal vs. Illegal Immigration: Economic Implications

Timestamp: 07:20 – 08:44

Sabri raises a critical question about the discussion's scope—distinguishing between illegal and legal immigration—and its impact on economic outcomes.

Key Insights:

• Unified Economic Impact: Hernandez explains that both legal and undocumented immigrants contribute similarly to the economy through the previously mentioned five avenues. He states, “The undocumented immigrants... provide all those five things I spoke about earlier” [07:40].
• Systemic Challenges: He highlights the dysfunction in the immigration system, noting, “if you don't simultaneously change the system... you're not going to solve the problem. You're going to only make it worse” [07:40]. Without reforms, efforts to crack down on illegal immigration could inadvertently harm the economy by reducing the very labor and innovation that drive growth.

---

Concluding Remarks

Timestamp: 08:30 – 08:44

The episode wraps up with Sabri acknowledging Professor Hernandez's insights, reinforcing the intricate balance between immigration policies and economic health. The conversation underscores the necessity for informed policy-making that considers both social and economic dimensions to foster a resilient and thriving economy.

---

Takeaways:

• Federal Reserve's Balancing Act: The Fed must navigate the dual challenges of controlling inflation while maximizing employment without clear indicators of which poses a greater threat.
• China's Strategic Economic Response: Through fiscal stimulus aimed at consumers, China mitigates the negative impacts of trade tariffs on its manufacturing sector.
• Immigration's Economic Role: Immigration, both legal and illegal, plays a substantial role in fostering innovation, consumption, and economic growth. Restrictive policies may have unintended negative consequences on the broader economy.
• Market Perceptions: Markets react differently to immigration policies compared to tariffs, often underestimating the long-term economic implications of the former.

This episode provides a comprehensive analysis of how intertwined immigration and trade policies are with economic indicators and market responses, offering listeners a nuanced understanding of current economic dynamics.

Transcript

[Sabri Benishore]

Hey there and thanks for listening. We want to know more about our audience. Stick around at the end of this episode to hear about how you can help, provide feedback and have a chance to walk away with a $75 gift card.

[Wix Advertisement]

Running a business can be exhausting. Building your website shouldn't be. With wix, you can express your ideas, give direction, then leave the heavy lifting to AI from site creation to branded content and images. Have fun with the details, customize what you want the way you want and manage your whole business from a centralized dashboard with expert AI tools. Build, scale and enjoy the incredible results. You can do it all yourself on wix.

[Sabri Benishore]

What's the biggest risk to the economy right now? The Fed has to choose from Marketplace. I'm Sabri Benishore in for David Brancaccio. The Federal Reserve is meeting this week and as it takes a look at the US Economy, it is legally required to worry about two things, keeping as many people employed as possible and keeping inflation under control. So lots going on that could affect both. The latest being conflict in the Middle east affecting oil prices. Julia Coronado joins us now. She's founder of Macro Policy Perspectives. Julia, which one is the bigger risk, inflation or unemployment?

[Julia Coronado]

Well, the problem for the Fed is they don't know yet which is the greater risk. What we do know is that they've been running above their inflation target for more than four years now. And while we got good news on inflation last week for May, it's still too early to see the impact of tariffs. And as you mentioned, now we have the prospect of higher oil prices. So they really don't know whether the greater risk to the economy is a slowdown from all of the things buffeting the economy, the changes in policy, the trade war or higher inflation. And so I think they're just going to continue to be in wait and see mode.

[Sabri Benishore]

Let's move to the world's second largest economy, China. Tariffs are showing up in the data. Their factory output growth is down but retail sales there, consumers doing much better than expected. Why would that be happening?

[Julia Coronado]

Well, China is prepared for a drawn out battle on tariffs. What they have done is try to offset the inevitable hit to their manufacturing sector from the trade war and tariffs by boosting their consumers with fiscal stimulus. So we see that combination in the data spending up a little bit. That helps offset what is a pretty sizable drag to their manufacturing sector from tariffs.

[Sabri Benishore]

Julia Coronado, founder and president of Macro Policy Perspectives, thank you so much.

[Julia Coronado]

My pleasure.

[Wix Advertisement]

No offense, but your brain is a terrible place to keep your big idea. It belongs in the world. But you know that already. You have a calling, a voice that says this is what I'm meant to do. Create the website your big idea deserves with wix. Make it your own with top to bottom customization, AI to help realize your vision and built in business tools to turn your daydream into your dream job. Wix supports every stage of the business journey except one. Your decision to begin. Ready go to Wix.com hi Zoe Saldana.

[T Mobile Advertisement]

Welcome to T Mobile. Here's your new iPhone 16 Pro on us.

[T Mobile Customer]

Thanks. And here's my old phone to trade in.

[T Mobile Advertisement]

You don't need to trade in. When you switch to T Mobile, we'll give you a new iPhone 16 Pro. Plus we'll help you pay off your old Phone up to 800 bucks and you still get to keep it.

[T Mobile Customer]

There's always a trade end.

[T Mobile Advertisement]

Not right now. @ T Mobile.

[T Mobile Customer]

I feel like I have to give you something in return for karma.

[T Mobile Advertisement]

That's okay.

[T Mobile Customer]

I don't really have much in my purse. Oh, let's see. Hand sanitizer. It's lavender.

[T Mobile Advertisement]

I'm good.

Seriously.

[T Mobile Customer]

Let me check this pocket. Oh, mints.

[T Mobile Advertisement]

Really, I'm fine.

[T Mobile Customer]

Oh, I have raisins. I'm a mom. Wait, wait one sec. I've got cupcakes in the car.

[T Mobile Advertisement]

It's our best iPhone offer ever. Switch to T Mobile. Get a new iPhone 16 Pro with Apple Intelligence on us. No trade in needed. We'll even pay off your phone up to 800 bucks with 24 monthly bill credits. New line $100 plus a month on experience beyond agreement $999.99 and qualifying for it for well qualified plus tax and $10 connection charge payout via virtual prepaid card. Allow 15 days credits and imbalance due if you pay off early or cancel.

[Sabri Benishore]

CT mobile.com Despite continued protests over immigration policy, President Trump in an online post yesterday, directed immigration enforcement to deport more people in the country illegally, specifically those in major cities like Los Angeles, Chicago and New York. This is also despite multiple published reports that the administration has asked immigration officials to pause raids on workplaces like farms and hotels. We're continuing to track what more restrictive immigration policy could mean for the US Economy. Zeke Hernandez is a professor at the University of Pennsylvania's Wharton School. He spoke with my colleague David Brancaccio.

When tariff policy was enacted, the markets, especially the bond market, threw a fit. With immigration raids increasing and protests in the national headlines, markets don't seem to be as concerned. They're not focused on this policy, I don't think in the same way as tariffs. It's almost seen as a social or cultural story. But you say it is very much economic as well.

[Zeke Hernandez]

I think there's a difference in that the effects of tariffs are very easy to understand. They happen quickly. They're highly visible. Right. The evidence on the economic importance of immigration isn't as widely disseminated. And we can list five ways in which immigrants affect you directly. One is that they bring innovation, two, they bring consumption, three, investment, four, talent and five, taxes. And those numbers are pretty large. If you were an investor or someone watching the market, you would react to these things.

[Sabri Benishore]

And there are people who are very focused on a piece of this which is preserving or bolstering jobs for native born Americans. The data is actually quite interesting about the interplay of immigration and, and the jobs of Americans.

[Zeke Hernandez]

Yeah. And it's very clear, but perhaps in the opposite way that sometimes politicians and the headlines communicate, which is that immigrants are net job creators, not net job destroyers. Both of these high tariffs and immigration reductions are a really powerful 1, 2 negative punch to the economy because you are increasing the price of intermediate and final goods and, and you are contracting labor supply. Those two things put together are highly inflationary and end up contracting the economy in ways that take away jobs for everybody.

[Sabri Benishore]

We're not seeing that contraction just yet. It's speculative. The economy has proven quite resilient.

[Zeke Hernandez]

One of the reasons we're not seeing it yet is that the tariffs have not really been officially implemented. Right. We keep hearing rumors and then they're scaled back and then there's a threat and then there's an announcement of a deal that's not really a deal. The same with immigration. We haven't seen mass expulsions. If the stated policies on both tariffs and immigration take place, then we will start seeing this.

[Sabri Benishore]

Do you worry that we sometimes fail to, in a discussion like this, fully distinguish between illegal immigration and legal immigration? I mean, we've been talking about immigration in the aggregate. The objection among some Americans is to people here without permission. And how do you parse that?

[Zeke Hernandez]

The undocumented immigrants that come into this country, strictly speaking, when it comes to the economy, they provide all those five things I spoke about earlier. And we need those people. Of course we want them and prefer them to come in through a legal, orderly channel. But I think once we understand that our legal system does not provide enough people and that the illegal channel is in some ways a dysfunctional response to, to how constrained the legal system is, we see that there's a very tight relationship between the two. And so part of what troubles me is that you can talk all you want about cracking down on illegal immigration, but if you don't simultaneously change the system, which there have been no substantive proposals to change the system, you're not going to solve the problem. You're going to only make it worse, particularly economically for the pocketbooks and jobs of Americans.

[Sabri Benishore]

Zeke Hernandez teaches at the University of Pennsylvania's Wharton School. He's author of the book the Truth About Immigration why Successful Societies. Welcome, newcomers. Professor thank you.

[Zeke Hernandez]

Thank you for having me on.

[Sabri Benishore]

That was Professor Zeke Hernandez speaking with Marketplace's David Brancaccio in New York. I'm Sabri Benishore with the Marketplace morning from APM American Public Media.

[Adam Grant]

Hi, I'm Adam Grant, host of the podcast Rethinking, a show where I talk to some of today's greatest thinkers about the unconventional ways they see the world. On Rethinking, you'll get surprising insights from scientists, leaders, artists and more people like Reese Witherspoon, Malcolm Gladwell, and Yo Yo Matt. Here are lessons to help you find success at work, build better relationships and more. Find Rethinking wherever you get your podcasts.