Foreign Stocks

Will Trump’s travel ban hurt the economy?

World population migration, 2016. Blue = gain; orange = loss. Source: Wikipedia

The short answer is no. The US only accepted 70,000 refugees every year anyway. That’s a pittance in an economy that employs over 160 million people. A much bigger impact would come from a crackdown on illegal immigrants already in the US. The US employs about 8 million unauthorized immigrants – about 5% of the workforce. These people are concentrated in certain industries and certain states. Illegal immigrants account for 17% of the workforce in agriculture and 9% in leisure and hospitality. They account for about 10% of the workforce in Nevada and California.

Source: Pew Research Center, Capital Economics

These are potentially huge numbers. You can’t disrupt a sixth of an industry’s labor pool without affecting output, prices, and profitability. If we make significant changes to the domestic workforce we can expect increased wage pressures and challenges in getting workers to the right jobs at the right time.

President Trump has also proposed adopting a skills-based immigration system for legal immigrants similar do the procedures in place in other Western nations. This could result in higher productivity, boosting our economic potential. Even if the US adopts lower immigration limits, this could be out-weighed if these workers are more productive.

Finally, a crackdown in border security could impact tourism and education. Tourism accounts for 8% of GDP and the US has a massive advantage in higher education. 26 of the top 30 global universities are in the US, according to US News and World Report. Increased border controls and tighter visa requirements would affect tourist spending and could limit our access to some of the brightest minds. This would have a longer term impact on the economy.

The travel ban and immigration restrictions may be justified for other reasons, but they will exact an economic toll. Some industries, like agriculture and construction, could be significantly disrupted. The more pro-business approach of the new administration has lifted many stocks indiscriminately. Investors should be careful that they don’t get surprised by an increased cost structure.

Douglas R. Tengdin, CFA

By |2017-07-17T12:21:28-04:00March 8th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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