Diego Rodríguez Paez
Director of Logistics and Industry Practice
AMI
Anyone’s first thought is that massive deportations from the U.S. could destabilize economies across Central America. Remittances from the U.S. play a pivotal role in driving consumption, imports, and economic stability in countries like Guatemala, Honduras, and El Salvador. However, an abrupt halt in these funds is unlikely, and we expect a moderate and economic impact on trade and logistics.
Meanwhile, the U.S. agricultural sector, heavily reliant on migrant labor, would face labor shortages. These shortages would impact the production of key crops and create potential trade opportunities for Latin American exporters.
This article explores two scenarios—a worst-case scenario and a more likely one—to estimate the potential impacts on the Central American and U.S. agricultural sectors
Scenario 1: The Worst-Case Scenario
1. Collapse in Remittances as the US deports 40% of illegal immigrants by 2026
Remittances are a lifeline for Central American economies. In El Salvador, they make up 24% of GDP, and Guatemala and Honduras are also highly dependent on funds sent from the U.S.
- Financial Toll on Consumption: Lower remittance inflows would cause households in Central America to reduce essential and discretionary spending. For instance, if Guatemala lost half of its remittances, its GDP could decline by an estimated $8 bn, or 6%, three times the decline during the COVID-19 pandemic.
- Decrease in Imports and Effects on Trade: The immediate effect of reduced remittances would also be visible in lower demand for imported goods, ranging from electronics and auto parts to food products. This decline would hurt regional importers and logistics providers and could lead to a slump in trade volume. The consumption of recipient families, stimulated by remittance flows, focuses on meeting basic needs, healthcare, and education. However, this consumption can extend to what are known as luxury purchases, with the primary examples being the acquisition of high-end appliances, mobile phones, and designer clothing.
2. Logistics Challenges and Job Losses
Lower imports would reduce the volume of the logistics sector, especially in ports and transportation hubs, affecting jobs throughout supply chains. This drop in import and export demand could create a domino effect, causing layoffs and business closures, further reducing local spending and tax revenues.
- Impact on Trade and Logistics: Lower trade volume would impact shipping lines, trucking companies, and other logistics businesses that rely on high import and export activity levels. For example, Honduras’s largest port, Puerto Cortés, which handles over 70% of its international cargo, could experience reduced shipments, impacting its revenue and resulting in potential job losses.
Scenario 2: The Likely Scenario
While a worst-case scenario would be catastrophic, considering the logistical and regulatory hurdles the Trump administration will face, a more likely scenario involves significant but less severe deportations and reduced remittances. However, it is good to remember that in 1998 and 1999, the US deported almost 2 million illegal aliens per year.
This scenario anticipates a steady reduction in remittances over time rather than a sudden halt, providing Central American economies with some ability to adapt while considering for the first couple of years, most deportations focus on people who have already been caught and are pending their court date. Despite what Trump promises, it will not be easy to increase deportations. As for going after people who are illegal and operate in the shadow economy, efforts by ICE to raid factories, etc, have not worked well in the past. Also, Trump’s most prominent supporters (large companies) will push back against ICE raids. Therefore, finding illegals depends on waiting till they get caught breaking the law (speeding, going through a red light, or conducting a crime). In those cases, cities that democrat mayors run will do what they did last time and call their city a ‘safe-haven,’ where they do not share arrest data with federal authorities. Cities are not obliged to share information on civil offenses (like traffic violations) with the Feds; they must only share information on criminal offenses.
1. Gradual Decline in Remittances with Adaptations in Domestic Consumption
Under this scenario, remittances might decrease by around 20%. Although the downturn is still impactful, Central American economies could employ short-term measures to mitigate it.
- Effect on Household Spending: Reduced remittances would lower consumption, but the impact would be less dramatic than in the worst-case scenario. Families might cut back on discretionary expenses, affecting the retail and services sectors. For instance, in Guatemala, retail sales could experience a moderate decline, but essential consumption might remain stable as households adapt.
- Trade Impacts: Imports would likely decrease, but only marginally, with a smaller impact on trade volumes than the worst-case scenario. In this case, the logistics sector would see reductions in traffic but could continue to operate with fewer job losses.
Deportation Impacts on Remittances
| Country | Nominal GDP (2024) USD Bn | Remittances (2024) USD Bn | Remittances as % of GDP | Worst-Case Reduction ($) USD Bn (40%) | Likely Reduction ($) USD Bn (20%) |
|---|---|---|---|---|---|
| Dominican Republic | $125.9 | $10.5 | 8% | $4.2 | $2.1 |
| El Salvador | $35.2 | $8.4 | 24% | $3.3 | $1.6 |
| Guatemala | $113.4 | $20.9 | 18% | $8.3 | $4.2 |
| Honduras | $39.3 | $9.3 | 24% | $3.7 | $1.8 |
| Jamaica | $19.0 | $3.5 | 18% | $1.4 | $0.7 |
| Nicaragua | $18.9 | $5.1 | 27% | $2.0 | $1.0 |
2. U.S. Agricultural Production Challenges and Labor Shortages
The U.S. agricultural sector relies intensely on migrant labor, much of which originates from Latin America. If deportations target agricultural workers, this could lead to labor shortages, disrupting the production of labor-intensive crops like fruits, vegetables, and nuts.
Key States and Crops at Risk
Labor shortages could have a pronounced effect on agricultural production in states such as California, Florida, and Texas, where a significant portion of the workforce includes migrant labor from Latin America. Crops most at risk include:
- California: Grapes, strawberries, and almonds are likely to be affected. California, which produces over 90% of U.S. grapes and strawberries, relies heavily on a consistent labor force for harvest. According to the Center for Migration Studies, an estimated 48% of the workforce in California is undocumented. The agricultural GDP was around $60 billion in 2022.
- Florida: Citrus fruits and tomatoes could face significant production challenges, increasing costs and reducing output. Less than 30% of the workforce is estimated to be illegal. Florida’s agricultural GDP was estimated at around $6 billion in 2022.
- Texas: Due to labor scarcity, yields of melons, peppers, and other vegetables may be lower, impacting local economies and potentially raising prices for U.S. consumers. According to the Center for Migration Studies, 40% of the workforce is estimated to be illegal. Agriculture contributes about $10 billion to the state’s GDP.
Opportunities for Latin American Exporters to Fill the Gap
While the U.S. agricultural sector would face labor shortages and production declines, Latin American exporters could bridge the supply gap. This shift would provide economic stability for Latin America and continuity for U.S. consumers, creating a potential win-win situation.
- Countries Best Positioned to Increase Exports: Mexico, Costa Rica, and Peru are well-suited to expand exports in response to potential U.S. shortages.
- Mexico: With robust agricultural infrastructure and established trade routes to the U.S., Mexico could quickly ramp up exports of tomatoes, avocados, and berries. However, a renewed USMCA is likely in 2026, and potential quota restrictions could be part of the new deal.
- Costa Rica: Known for its high-quality fruit production, Costa Rica could increase exports of bananas, pineapples, and other tropical fruits to meet U.S. demand.
- Peru: Already a major exporter of grapes and avocados, Peru could expand its market share in the U.S. by leveraging its seasonal advantages to supply fresh produce when U.S. harvests face shortages.
Comparative Analysis: Worst-Case vs. Likely Scenarios
In the worst-case scenario, Central American economies would experience rapid economic contractions, with sharp declines in remittances and imports, job losses in logistics, and potentially destabilizing economic and social effects similar to those experienced during the COVID-19 years. U.S. agriculture would also be hard hit, with prolonged labor shortages and a significant reduction in crop yields, which could drive up food prices and inflation for US consumers.
In the more likely scenario, the economic impact in Central America would be substantial but manageable. U.S. agricultural producers would still face labor challenges, but the effect on production would be more controlled. This could create a steady rise in Latin American imports over time rather than a sudden market disruption.
Large-scale deportations from the U.S. are unlikely, and we expect the impact on Central America’s economy, households, trade, and domestic industries to be manageable.
Increasing imports from Latin American countries could partially mitigate the U.S.’s labor shortages in agriculture. This shift represents an opportunity for Mexico, Costa Rica, and Peru, which could expand their agricultural exports to the U.S. to meet potential supply shortfalls.
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