Monday, January 30, 2017

Economic Implications of the Immigration Order

The most troubling aspects of President Trump's immigration executive order are the moral and national security implications (the later is outside my area of expertise, but its hard to see how betraying our friends, alienating our allies and handing an easy propaganda victory to our enemies advances the stated goal of protecting America).

The economic implications are pretty bad as well.  Although the order currently applies only to people from seven countries, the spectacle of people who've jumped through all the bureaucratic hurdles to get permission to come to the US being detained and turned away at airports by a sudden, incompetently planned and implemented policy change will no doubt deter many others from wanting to come.

In the short run, making it less attractive to come to the US will hurt our tourism and education exports.  In the longer run, it will harm our productivity by diminishing our universities, science, technology and human capital.

One of Trump's stated economic concerns is the US trade deficit, which was -$499.5 billion in 2016 (2.7% of GDP), according to the BEA's advance estimate.   While the US trade balance is negative in goods (-$770.5 billion) that is partly made up for by a $271.1 billion surplus in services.

According to the ITA, the US had 77.5 million visitors in 2015, and Colorado had 461,000.

Tourism is an important part of US service exports.  2016 figures aren't available yet, but in 2015, according to the BEA, $750.9 billion in service exports included $122.4 billion in "other personal travel" (i.e., non-business travel not related to health or education). 

The order won't only deter tourists; in addition to tourism, education services are another major US export.  According to the Institute of International Education, there were just over 1 million international students enrolled in US colleges and universities last year.  In 2015, the US exported $35.8 billion of education-related travel, which includes tuition paid by international students.

In addition to contributing to US GDP and exports, international students play a vital role in US higher education.  At the undergraduate level, an important part of the experience is learning from one's peers - the presence of international students on our campuses enhances the educational opportunities for everyone.

International graduate students play a significant role in the life of our research universities, particularly in the sciences (and economics!).  The impact of the order was felt immediately by scientists (see also this story).  According to the NSF, international students earn more than half of the doctorates granted in the US in mathematics and computer science and engineering and over one third in physical and earth sciences.

The ability to attract hard-working, talented students from around the world is a source of strength for American university research and one of the reasons US institutions dominate global rankings.  US leadership in many fields also means that many of the faculty in US institutions are immigrants and green card holders.

Technology companies have spoken out about the impact of the immigration order on their workforces, but the impact will be more widespread - according to the NSF, 21% of the US science and engineering workforce is foreign born.

If the grad students, post-docs, scientists and engineers who are so vital to our universities and industries find America a less appealing place to live and work - for example, if they have to worry that if they leave to visit relatives, they risk not being able to get back in - they have other options.  The competition for talent is global, and this hands an advantage to non-US universities and businesses.

America is great, but President Trump's order will make it less so.