from Macro and Markets

The Long-Term Economic Costs of the President’s Executive Order on Immigration

January 30, 2017

Blog Post

More on:

Economics

United States

For all the human disruption and confusion associated with President Trump’s executive order on immigration released on Friday, it is also worth noting the potential for substantial negative macroeconomic dislocation from increased barriers to travel to the United States.  In October of last year, I along with my colleagues Ted Alden and Hedi Crebo-Rediker published a note looking at the economic effects of a Muslim travel ban. While the title highlighted a prospect of full ban, the central historical experience we drew on for our analysis was the use of intensified security measures after the 9/11 attacks. These measures can tell us a lot about what to expect from the current extreme vetting measures, particularly if the president’s order is expanded to include more countries over time.

In sum, our report highlighted the following:

  • The effects of extreme vetting on U.S. economic activity are immediate and far-reaching. In addition to those directly affected, there is a chilling effect on travel to the United States more broadly. After the 9/11 attacks, the enhanced visa requirements instituted under the National Security Entry-Exit Screening System (NSEERS) had an immediate and substantial impact on international travel, including importantly travel from countries not affected by the new measures. In part this reflected a general chilling effect from the new procedures.
  • This negative effect was persistent. As we show in our note, the rebound in travel after 2001 was gradual and arrivals did not return to their pre-9/11 level until the end of the decade. Tourism remain depressed, supply chains were disrupted and U.S. firms that relied on foreign know-how were disadvantaged.
  • We looked at a number of scenarios, estimated their immediate (impact) effects, and tried to quantify the broader spillover (multiplier) effects on the U.S. economy taking into account the knock-on spending that tourism and other foreign visits cause. What we found was startling. If widespread, the direct loss of spending due to restrictions on travel from Muslim countries could range from $14 billion to $30 billion per annum. Adding in indirect (multiplier) effects that take into account the broader spillover effects on the economy increases this range to $31 billion to $66 billion.

  • The loss of jobs could range from 50,600 to 132,000.

__________________________________________________________

Economic Impact Scenarios and Multiplier
Base Spending Direct ($billion) Multiplier – Indirect ($ billion) Total Impact ($ billion) Related job losses (direct)
Scenario 1 $13.79 $17.24 $31.03 50,600
Scenario 2 $29.50 $36.88 $66.38 132,000

__________________________________________________________

In addition, we estimate the loss to education spending to be about 15 percent of the total foreign student spending, or $4.6 billion. We also look at the potential economic impact on five U.S. states that would likely see the largest negative impact from a Muslim or broader travel disruption, which are the states most dependent on international visitors and are most tourism-dependent: Nevada, Florida, California, New York, and Hawaii.

In general, there are important security benefits from an efficient vetting system for foreign travelers, but President Trump’s unprecedented executive order fails to meet the test.  If last week’s action--and the unusually heated rhetoric accompanying the move--is seen by the world as creating a hostile environment for foreign travelers or more fundamentally signaling a less open attitude towards the world, it will have broad based and far reaching economic consequences.

Up
Close