The Economic and Investment Risks of Immigration Enforcement in California

The enforcement of immigration policies under the Trump administration has triggered a seismic shift in California’s economic landscape, exposing vulnerabilities in sectors that underpin the state’s GDP. Agriculture, construction, and hospitality—industries reliant on immigrant labor—now face existential risks, with long-term GDP implications that could reshape investment strategies and regional economic stability.

Sectoral Vulnerability: Agriculture, Construction, and Hospitality

Agriculture is the most visibly impacted sector. Over a quarter of its workforce is undocumented, and nearly two-thirds are immigrants [1]. A UC Merced study found that during ICE raids in June 2025, agricultural employment dropped by 155,000 workers within four months, exacerbating supply chain bottlenecks and driving up food prices [1]. Without undocumented labor, the agriculture industry’s GDP is projected to contract by 14% [1]. This is not just a labor issue but a systemic risk: California produces over half of U.S. fruits, nuts, and vegetables, making its agricultural output critical to national food security.

Construction faces a parallel crisis. With 26% of its workforce undocumented and 61% immigrant overall, the sector is grappling with labor shortages that could shrink its GDP by 16% [1]. A 2025 Bay Area Council Economic Institute report warns of a 10–25% increase in construction costs due to labor scarcity [4]. These costs ripple outward, affecting housing affordability and infrastructure development, which are already strained by California’s population growth and climate adaptation needs.

The hospitality sector is equally vulnerable. ICE raids have created a climate of fear, with undocumented workers avoiding work and businesses reporting revenue declines. In June 2025, the hospitality industry saw only 0.2% labor force growth, compared to 1.5% in June 2024 [2]. Restaurants in Los Angeles reported a 70% drop in sales during peak enforcement periods [1]. With travel spending in California reaching $157.3 billion in 2024—a 3% increase from 2023—the sector’s GDP contribution is substantial, but its reliance on immigrant labor makes it a high-risk investment [5].

Long-Term GDP Implications and Investment Risks

The cumulative impact of these sectoral disruptions could reduce California’s GDP by up to 9% in the long term [1]. This projection accounts for direct labor losses and indirect effects, such as the 10–13 native-born job losses for every immigrant departure in sectors like childcare and healthcare [6]. Additionally, undocumented immigrants contribute $8.5 billion annually in state and local taxes; their removal would create a fiscal vacuum, straining public services from education to transportation [3].

Investor confidence is also eroding. Companies are shifting supply chains to states with more favorable immigration policies, such as Texas [5]. Automation, often touted as a solution, is prohibitively expensive for small businesses and inapplicable to sectors like agriculture, where manual labor remains indispensable [2]. These trends signal a broader reallocation of capital, with California’s overreliance on immigrant labor creating a “volatility premium” for investors.

Conclusion: A Call for Policy Reforms

The data underscores a stark reality: California’s economy is not just immigrant-dependent but immigrant-driven. Without policy reforms to stabilize labor markets and address enforcement-driven volatility, the state risks a prolonged GDP contraction and a loss of its competitive edge. Investors must weigh these risks against the potential for innovation in automation and labor diversification, but the path forward remains fraught with uncertainty.

Source:
[1] The Economic and Investment Risks of Trump's Immigration Policies [https://www.ainvest.com/news/economic-investment-risks-trump-immigration-policies-california-key-sectors-2509-95/]
[2] Trump's Immigration Actions Are Taking a Toll on Local Economies [https://www.americanimmigrationcouncil.org/blog/immigration-toll-on-local-economies-what-the-data-says/]
[3] New Report: Lt. Governor Kounalakis Highlights Immigrants' Vital Role in California's Economy [https://ltg.ca.gov/2025/06/25/new-report-lt-governor-kounalakis-highlights-immigrants-vital-role-in-californias-econom/]
[4] The Economic and Investment Risks of Trump's Immigration Policies [https://www.ainvest.com/news/economic-investment-risks-trump-immigration-policies-california-key-sectors-2509-95/]
[5] 2024 Economic Impact of Travel [https://industry.visitcalifornia.com/research/reports/economic-impact]
[6] Trump's Deportation Agenda Will Destroy Millions of Jobs [https://www.epi.org/publication/trumps-deportation-agenda-will-destroy-millions-of-jobs-both-immigrants-and-u-s-born-workers-would-suffer-job-losses-particularly-in-construction-and-child-care/]