Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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

by Robert Kahn
January 30, 2017

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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.

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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 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.

Post a Comment 2 Comments

  • Posted by Felipe

    In the article, a point is made that NSEERS was the cause of the drop in the number of tourist, which I disagree.
    I remember around 2004, I had the opportunity to travel abroad, and choose not to go to New York, or anywhere in the US, with the Iraq war in full throttle at the time, due to the increased risk of terrorist attacks in my perception. I figured I could go at a later time, that ended up being 2007. This temporal substitution is also the cause of the large drop in tourism right now in countries like Turkey and Egypt. Why risk right now, when you could wait 2 (or 10) years?
    I know this is anecdotal evidence, but attributing the drop of tourist from not-affected countries to visa barriers only does not seem right to me. Also this is visible by looking at countries not affected by NSEERS, that you could as a control group, to isolate fear effect from barrier effects.
    These isolated barrier effects could them be used to predict the effect of the trump wall et all, given low terrorism fear in the US now.

  • Posted by Charles

    It must be made clear that Trump’s EO constitues an illegal ban on Muslims. It is a ban on Muslims because it contains an exception for Christians and members of *all* other religious groups in the seven countries. It is illegal because it contravenes the 1965 Nationality and Immigration Act. It is also in violation of the 1st Amendment of the US Constitution (which guards againt religious preference), the 4th Geneva Convention, and a host of other statutes of international law.

    I EMPLORE YOU: judges have ruled, these facts should be clearly stated in all reporting on the EO.

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