Trump's immigration policy and its impact on LA Remittances

Trump's immigration policy and its impact on LA Remittances

Jennifer Montoya Madrigal[1], OBELA[2]

President Trump's return to power means the return of anti-immigrant policies. Measures against the undocumented population will impact the amount of remittances sent to Latin American and Caribbean countries. ad. Remittances represent an important percentage of the region's International Reserves and GDP. This article will address how deportations of undocumented migrants and the impact of the decrease in remittances could affect them.

Before the United States became the giant we know today, it was a country built by migrants, mostly Europeans. Today, it is an attractive destination for Latin American migrants (and from other regions), due to the precarious employment or violent conditions they experience in their countries of birth. This flow has been of great importance for the labour force in the US since 1995 (see Graph 1) and has grown significantly in sectors such as agriculture, construction, manufacturing, and transport. 

Remittances are money transfers made by migrants to their families back home, which represent an important source of income for LA. According to the Centre for Latin American Monetary Studies, migrants spend 18.5% of their annual labour income on remittances. The rest of their income goes to consumption and tax payments in the US. Although not all migrants arrive legally, they contribute significantly to the tax system. According to the Fiscal and Economic Policy Institute, undocumented migrants paid 97.7 MUSD in taxes in 2022. 

On 20 January 2025, Trump declared a national emergency on the southern border and implemented tougher measures and increased his forces to prevent illegal entry. He also declared that he would deport all illegal immigrants, specifically Latin Americans, who number 11 million people. According to the American Immigration Council, this would cost 300 billion dollars, which would damage the financial health of the US,  to The Peterson Institute for International Economics. At the same time, he said he would implement a 10% tax on money sent abroad.

Remittances have already been affected; in the case of Mexico (the second largest remittance-receiving economy in the world), remittance flows in January fell to 4.66 billion dollars according to BANXICO, a drop of 10.78% compared to the previous month. In the case of some municipalities such as San Cristóbal de las Casas, Chiapas, they contracted by 40%. In the same way, transactions decreased to 11.9 million dollars, compared to 13.9 million dollars in December 2024. This is due to the displaced people's fear of being detained by the Immigration and Customs Enforcement Service.

As we can see, Reserves are affected by remittances, so the exchange rate will indirectly be affected by Washington's anti-migration policy. Remittances play an important role for countries such as Mexico, El Salvador, Guatemala, Colombia, Honduras and Peru. Graph 2 shows the importance of remittances in economies such as El Salvador and Honduras, where they represent more than a quarter of their GDP. Guatemala follows with 19% and finally Mexico, Colombia and Peru, where the proportion is lower, but still significant for growth, in contrast to other sectors of their economy. For some Mexican states, remittances represent more than 10% of their GDP, such as Chiapas, where they account for 16% of the state's GDP.

Money transfers are not only a source of economic livelihood for families, but also a source of foreign exchange for international dollar reserves. Remittances help to keep exchange rates stable. Graph 3 clearly shows the positive trend of remittances, with values of 119.62% for Honduras, 95.81% for Guatemala, and 227.82% for El Salvador in 2021. To a lesser extent Mexico, Colombia, and Peru, with 31.10%, 17.22%, and 6.43%, respectively.

            In conclusion, the North's anti-migration policies have already affected LA's economies and its exchange rates. While remittances are a source of reserves and income for families, they encourage the expulsion of people and discourage policies to create jobs and improve living standards. Argentina does not obtain foreign currency through remittances, but through international credits, which is why it requested a loan from the IMF for 11 billion dollars. Mexico, on the other hand, obtains six times that amount of foreign currency through remittances, which allows it to manage its stable exchange rate. For its part, the American giant will also be affected by the expulsion of migrants, with a decrease in tax revenue and labour. If the United States decides to accept the cost of deportations, it would move away from the goal of reducing the fiscal deficit and ensuring greater production within the United States.