from Macro and Markets

A Muslim Travel Ban and the U.S. Economy

October 06, 2016

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Comments today from Mike Pence have put the spotlight back on Donald J. Trump’s call to restrict Muslim travel to the United States. In the attached note, Heidi Crebo-Rediker, Ted Alden and I look at some scenarios as to what that could mean for the U.S. economy. The results are sobering.

Recall that in December 2015 Mr. Trump proposed a full, temporary ban on travel by Muslims to the United States.  More recently, he called for a suspension of travel from regions “linked with terrorism until a proven vetting method is in place.” While details of how this would be done have not been provided by his campaign, it would appear that the policy remains in flux and could be quite broad, focused primarily at discouraging Muslims from coming to the United States.

A comprehensive Muslim travel and immigration ban, even if temporary, would have significant national security and political consequences for the United States, including adverse consequences for U.S. counter-terrorism efforts. Similar, though much less draconian, measures following the September 11 terrorist attacks complicated U.S. diplomacy for much of the 2000s. But a comprehensive ban would also have far-reaching, negative economic consequences for the United States, particularly in travel, tourism, and education.  Travel and tourism are the second largest source of exports of goods and services in the U.S. economy. The slowdown in travel in the years after 9/11 – a consequence of measures much less extreme than the proposed Muslim ban – has been called a “lost decade” for travel and tourism to the United States.

According to the Department of Commerce, in 2015, 77.5 million international visitors traveled to the United States, spending a record $246.2 billion on U.S. goods and services to, and within, the United States, or roughly 11 percent of total U.S. exports. Those same international visitors supported 1.1 million American jobs, or roughly 14 percent of total travel and tourism-related jobs.

A Muslim ban, or any targeted or broad-based ban on foreign visitors from countries with significant Muslim populations, would also have consequences well beyond the direct effect on travelers. It would hurt the economies of communities dependent on tourism. A ban on these travelers also would spill over to federal, state, and local budgets via decreased tax revenues. And depending on how other nations react, it could have still broader consequences for travel, trade, and investment.

In our note, we estimate that (see table):

  • The direct loss of spending due to a Muslim travel ban 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.

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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

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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 ban, which are the states most dependent on international visitors and are most tourism-dependent: Nevada, Florida, California, New York, and Hawaii.

 

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