U.S. Immigration Enforcement and Labor Market Impacts on Manufacturing Sectors

The U.S. manufacturing sector is at a crossroads, with immigration enforcement policies under the Trump administration (2023–2025) reshaping labor markets and supply chains. These policies, including expanded deportations and stricter border controls, are projected to reduce 2025 GDP growth by 0.1–0.4 percentage points, depending on enforcement intensity [1]. For industrial investors, the implications are twofold: acute labor shortages in labor-intensive sectors and a forced pivot toward automation and offshoring, both of which are redefining stock valuations and operational strategies.

Labor Shortages and Supply Chain Volatility

Immigrant labor has long been a cornerstone of U.S. manufacturing, particularly in construction, agriculture, and food production. In 2022, 25.3% of construction workers and 25.3% of agricultural workers were immigrants [2]. However, recent enforcement actions, such as ICE raids and the OBBBA’s increased border funding, have disrupted this labor pool. The construction industry, already facing a 500,000-worker shortage by 2025 [2], now contends with project delays and rising wages. A Brookings analysis notes that labor shortages could push up production costs, indirectly fueling inflation and reducing manufacturing output [3].

The ripple effects extend beyond direct labor costs. For example, ICE enforcement has created a "chilling effect," discouraging immigrants from entering the workforce [4]. This self-censorship exacerbates shortages, forcing companies to absorb higher hiring costs or pass them to consumers. A Dallas Fed study estimates that declining immigration could reduce GDP growth by 0.75–1 percentage points in 2025 [5], compounding risks for industrial firms reliant on stable labor inputs.

Labor Substitution: Automation and Offshoring

Faced with labor constraints, manufacturers are accelerating automation and offshoring. A case in point is a U.S. consumer goods company that reshored operations using agile automation, reducing production space by 50% and increasing assembly speed threefold [6]. Such investments highlight automation’s dual role: mitigating labor shortages while improving efficiency. However, the transition is costly. A CSIS report warns that automation adoption lags in sectors like agriculture, where mechanization is hindered by the time required to develop specialized technologies [7].

Offshoring, meanwhile, is gaining traction as firms seek to circumvent domestic labor bottlenecks. A meta-regression analysis reveals that automation positively correlates with reshoring in developed countries but also enables offshoring in developing ones, depending on cost structures [8]. For instance, a vaccine syringe manufacturer leveraged modular automation to offset offshoring risks, achieving a 50% reduction in production space [6]. Yet, offshoring introduces new vulnerabilities, such as geopolitical tensions and supply chain fragility, which investors must weigh against labor cost savings.

Industrial Stock Performance: Winners and Losers

The interplay of labor shortages and substitution strategies is reshaping industrial stock valuations. Firms that rapidly adopt automation—such as those in advanced manufacturing—have seen improved earnings resilience. Conversely, companies reliant on immigrant labor, like construction and food processing firms, face earnings volatility. A structural VAR model analysis suggests that large-scale deportations could reduce U.S. output and real GDP, with native wages declining due to their complementarity with immigrant labor [9].

Sector-specific examples underscore these dynamics. A major CPG company’s stock price surged after implementing high-speed digital assembly technology, reducing dependency on offshoring and improving margins [6]. Conversely, construction firms reporting ICE-related labor disruptions saw earnings reports fall short of expectations, with stock prices lagging peers [10].

Investment Implications

For investors, the key lies in identifying firms that proactively address labor market shifts. Automation leaders and companies with diversified labor strategies—such as hybrid onshore/offshore models—are better positioned to navigate volatility. Conversely, firms slow to adapt may face margin compression and operational risks. Policymakers, meanwhile, must balance enforcement with labor market stability, as prolonged shortages could undermine manufacturing competitiveness.

Source:

[1] Immigration and the macroeconomy in the second Trump administration [https://www.brookings.edu/articles/immigration-and-the-macroeconomy-second-trump-administration/]
[2] Immigrants Are Key to Filling US Labor Shortages, New [https://www.americanimmigrationcouncil.org/blog/immigrants-fill-us-labor-shortages-map-the-impact]
[3] Immigration Enforcement and the US Agricultural Sector in 2025 [https://www.aei.org/research-products/report/immigration-enforcement-and-the-us-agricultural-sector-in-2025/]
[4] 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/]
[5] Declining immigration weighs on GDP growth, with little [https://www.dallasfed.org/research/economics/2025/0708]
[6] Reshoring Consumer Goods With Agile Automation [https://atsindustrialautomation.com/case_studies/reshoring-consumer-goods-with-agile-automation/]
[7] Immigration Policy Solutions to Shortages in Critical Sectors of the U.S. Economy [https://www.csis.org/analysis/immigration-policy-solutions-shortages-critical-sectors-us-economy]
[8] Automation and off(re)shoring: A meta-regression analysis [https://www.sciencedirect.com/science/article/pii/S0925527323002128]
[9] The impact of US deportation policies on the US, Canadian [https://www.sciencedirect.com/science/article/abs/pii/S0161893825000602]
[10] Impact of ICE Raids on the Construction Industry [https://www.uppteam.com/impact-of-ice-raids-on-the-construction-industry/]