Connecting The Dots

Connecting The Dots

July 17, 2023

Recently during a meeting, I was asked by one of my clients what I thought the effects geopolitical tensions and deglobalization with China would have on both the markets and our economy. Many of the talking heads on TV have mentioned that impacts could include higher costs for the U.S. consumer, more diverse supply chains, and higher Chinese unemployment as a few possible outcomes. However during the meeting my clients were intrigued when I began to hypothesize the impact that these changes may have on U.S. immigration policy.

Immigration has historically been a hot button issue here in the United States with both politicians pandering to their respective parties in order to obtain the all precious vote. It has become taboo to discuss out of fear of offending or alienating ones audience as one never knows another's political leanings. The Migration Policy Institute, a nonpartisan think-tank, states that "while the U.S. population represents about 5 percent of the total world population, close to 20 percent of all global migrants reside in the United States". Another way of thinking of this is that if the United States was a business it has a pretty dominant market share if the product being considered is immigration. 

With the push to "de-couple" or "de-risk" from China gaining steam, manufacturers are looking for alternatives to find the cheapest way to make their goods while ensuring price stability that is free from the negative price impacts of tariffs and trade wars. Axios reported on 7/12/23 that for the first time "Mexico surpassed China as the United States' Top Trading Partner". As more companies "on-shore" their manufacturing capabilities and move their production to our Southern Border, I'm of the opinion that Mexico's economy will continue to strengthen relative to most Emerging Market economies as well as even relative to the United States. One metric that confirms this is if one observes the Peso vs the Dollar currency exchange rate. The dollar has weakened relative to the peso over the past year which coincides with talk of "de-risking" from China becoming more commonplace. This trend should continue as more foreign investors pour money into the Mexican economy. More money means more investments, more investments means more jobs should be created, and more jobs ultimately should mean less incentive or motivation for Southern migrant families to continue the arduous track through Mexico and across the Rio Grande for the hope of a better life.

North of the border, the United States has an aging demographic problem. Fertility rates across the board have continued to drop, and with fewer children being born, this trend will have a profound impact on the financial feasibility of programs like Social Security and Medicare, which are based off of the assumption that the next generation of tax paying Americans be of the same size as the previous. Unable to grow organically through increased birth rates, the next viable option for us, as well as for most of the West, will be via revamped immigration policy. The Wall Street Journal reported on 7/15/23 in their article titled "Canada Woos American H-1B Visa Holders Fed Up With U.S. Immigration System" that competition is heating up for highly educated immigrants who are currently waiting to receive a Green Card. Canada will begin offering open work permits to any U.S. immigrant on an H-1B visa who may have been recently laid off, with the hope that they will move to Canada.

One can assume that the policy makers in Washington will, in the near future, become more vocal and concerned about these trends, and will began to craft policy to ensure that the United States remains the destination of choice for those who seek to live, work, and hopefully pay taxes here. This in turn should present investable opportunities for the astute investor to profit. If you would like to learn more about ways that I can help you, give me a call.