Trade Wars and Labor Shortages: Navigating the Policy-Driven Shifts in U.S. Employment and Markets

The Trump administration's trade and immigration policies from 2017 to 2021 have left a lasting imprint on the U.S. labor market, reshaping employment trends, sector dynamics, and investor landscapes. From tariffs that strained manufacturing to immigration crackdowns that disrupted low-wage sectors, these policies have created a complex interplay of challenges and opportunities for businesses and markets. As of June 2025, the ripple effects—slower hiring, rising wage pressures, and uneven sectoral recovery—are forcing investors to recalibrate strategies in an increasingly policy-sensitive economy.

Trade Policies: Manufacturing's Struggle and the Tariff Toll

The imposition of tariffs on Chinese imports, steel, and aluminum under Section 232 initially aimed to “protect” U.S. industries but backfired. A January 2021 study by the U.S.-China Business Council estimated that these policies cost 245,000 jobs and reduced real household incomes by $675 annually. By 2024, manufacturing employment had dipped by 1.4%, with production costs rising as companies absorbed tariffs on imported inputs.

The data underscores the unintended consequences: retaliatory tariffs from trade partners slashed U.S. exports, while domestic businesses faced higher costs. By April 2025, job growth had slowed to 177,000 additions, and the Federal Reserve projected that tariffs would reduce GDP by 0.8% by 2026. The , which dipped 6.5% by April 2025 amid escalating trade tensions, reflects investor anxiety over prolonged uncertainty.

For investors, this paints a cautionary picture. Consumer discretionary and industrial sectors, particularly those reliant on global supply chains, face lingering headwinds. Companies with exposure to tariffs—like steel producers or manufacturers using imported components—may struggle unless they secure alternative suppliers or pass costs to consumers.

Immigration Policies: Labor Shortages and Wage Pressures

Immigration restrictions and heightened border enforcement created a chilling effect on immigrant workers, exacerbating labor shortages in sectors like agriculture, construction, and hospitality. These industries, which employ two-thirds of crop workers and 34% of construction laborers, now face a 90% decline in unauthorized border crossings (2025 vs. 2023). This has pushed wages upward in affected sectors, squeezing profit margins for businesses unable to automate or restructure.

While high-skilled sectors like tech remained stable due to sustained H-1B visa issuance, the broader 1–1.5 million annual reduction in immigration relative to baseline trends has reshaped labor markets. The reveals a stark contrast: sectors like farming have seen steeper wage growth than average, while job vacancies remain stubbornly high.

Investors should prioritize companies in sectors with domestic labor flexibility or automation potential. For example, agricultural firms investing in robotics or construction companies using modular building techniques could mitigate labor shortages. Conversely, businesses in low-wage sectors with thin margins may see earnings squeezed unless they adjust pricing strategies.

Sector Rotations and Fed Policy: The Path Forward

The dual impact of trade and immigration policies is reshaping equity markets. Consumer staples and utilities, traditionally defensive sectors, may gain traction if wage inflation and slower hiring pressure consumer spending. Meanwhile, healthcare and technology, less reliant on low-wage labor, could outperform.

The Fed's response is critical. With unemployment holding at 4.2% but labor force participation rising, policymakers face a dilemma: tolerate higher inflation to preserve jobs or raise rates to curb spending. A suggests the Fed may hold rates steady in 2025, but if unemployment rises, rate cuts could follow—a boon for bonds and dividend stocks.

Actionable Investment Strategies

1. Defensive Plays:
2. Utilities (XLU) and consumer staples (XLP) offer stability amid slowing growth.

3. Treasury bonds could rally if the Fed signals easing.

4. Sector Rotation:

5. Automotive and robotics firms (e.g., ABB Robotics) benefiting from manufacturing automation.

6. Healthcare providers (e.g., CVS Health) with pricing power in a wage-sensitive economy.

7. Avoid:

8. Steel and aluminum stocks (e.g., Nucor) still grappling with tariff-driven cost pressures.
9. Retailers with low margins and exposure to labor shortages.

Conclusion: Navigating a Policy-Driven Economy

The legacy of Trump's policies is a labor market fragmented by sectoral imbalances and global supply chain strains. Investors must navigate these shifts by focusing on companies that can adapt to rising costs, labor shortages, or policy volatility. While defensive positions and sector rotations are prudent, the most resilient opportunities will lie in firms pioneering automation, geographic diversification, or pricing discipline—a testament to the enduring impact of policy on markets.

As trade wars and immigration crackdowns linger in the rearview mirror, the next chapter of economic policy will determine whether these trends stabilize—or escalate. Stay vigilant.

Ruth Simon is a pseudonymous analyst focusing on macroeconomic policy and its impact on markets. This analysis synthesizes public data and does not constitute personalized investment advice.