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.
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