Tougher Visa Policies Could Carry Heavy US Economic Cost

The Trump administration has imposed a number of entry restrictions through executive order, justifying them on national security grounds. Their national security impact is hotly debated and the orders also raise considerable moral issues. But one additional set of concerns regards the economic costs of tightening visa restrictions, which can be considerable even when looking solely at temporary visitors. While the current bans would likely have a limited economic impact on the US through reduced tourist and business travel, the extension of restrictions could carry increasingly heavy economic costs.

The current executive orders call for barring Syrian refugees indefinitely and restricting overall refugee flows to 50,000—a move discussed by Cindy Huang and Hannah Postel in a recent blog post. The order also temporarily suspended all entry from seven predominantly Muslim countries. The refugee and entry bans are undergoing review by the courts and are currently blocked. For the future, the administration is mulling broader visa requirements making it harder for a wider range of people to enter the United States including a “uniform screening standard and procedure” for everyone coming to the country.

The impact of visa requirements on travel and the economy

Tighter restrictions on permanent residence halt a positive force for economic growth and native-born wages in the US. But even bans or other limits on tourist and business visas carry a heavy cost, because many people are deterred from travelling to a country by the hassle and expense of obtaining a visa, while others can’t travel because their visa applications are rejected (already 20 percent of applicants in the case of Mexico, 54 percent in the case of Senegal, for example).

Robert Lawson of Southern Methodist University and Saurav Roychoudhury of Capital University suggest that demanding a visa in advance from citizens of a country is associated with a 70 percent lower level of tourist entries than from a similar country where there is no requirement to get a visa. Simone Bertoli and Jesús Fernández-Huertas Moraga argue the introduction of a visa requirement reduces total direct bilateral flows between 40 and 47 percent, while increasing the flows toward other destinations between 3 and 17 percent—implying that tougher visa restrictions would reduce American tourism receipts to the benefit of other countries. It wouldn’t be a surprise if making the visa process tougher increased its deterrent effect—and the evidence on introducing the in-person interview requirement for US visa applicants suggests exactly that, according to Department of Homeland Security research.

Lower flows of people have knock-on effects: Natalia Kapelko and Natalya Volchkova of the Center for Economic and Financial Research document that not only do the value of exports fall with visa restrictions, so too does the probability of US firms entering visa restricted foreign markets. Other evidence suggests that when you make it harder for people to move to your country, not only do tourism and exports fall, but the diffusion of knowledge slows and the quality of international students drops.

The costs and benefits of tighter travel restrictions

The immediate economic cost from temporarily barring visitors (as opposed to green card holders) from the seven countries on the Executive Order is relatively low since they are not major sources of tourism or trade. In 2016, combined US exports to the countries were just $1.6 billion—out of total US exports of $ 6.4 trillion. Only about 84,000 people from those countries visited the US in 2015 on visas. On average, overseas travelers to the US spend about $4,400 on American goods and services with each trip. That suggests a direct economic cost of $370 million per year were the ban to continue.

Nevertheless, even these numbers suggest that rescinding the ban, or at least targeting more precisely to exempt lower-threat entries—including 80-year-old grandmas, five-year-old children, and people who worked with coalition forces during the Iraq war—would have benefits. As to any potential benefits in terms of reduced security risks, it is worth noting no national from any of the seven banned countries has killed an American on US soil in terrorist attacks at any time between 1975 and 2015.

The costs of a tougher visa policy would increase were the bans made permanent or extended to more countries. Robert Khan, Ted Alden, and Hedi Crebo-Rediker of the Council on Foreign Relations suggest the direct and indirect costs of a full travel ban covering every Muslim-majority country could range from $31 billion to $66 billion, with an associated US job loss of 50,600 to 132,000.

And tighten visa restrictions to all countries, then a considerable part of the $221 billion in US tourism receipts each year could be at risk—alongside global trade, and financial and technological cooperation. Again, there may be security benefits to tougher visa requirements and restrictions. But it is worth noting the chance of being murdered by a tourist on the most common visa (the B visa), is 1 in 3.9 million per year. The chance of being murdered by someone already here is about 152 times higher.

Regardless of their scope and scale, the strongest arguments against greater restrictions on entry into the United States may remain those around national security, morality, and human decency. But if the restrictions are expanded, they will have an ever-greater economic impact as well. Those who want to visit will lose out from a dream holiday, a better education, or a chance to start a trading relationship. But so will the Americans who work in hotels and resorts, schools and universities, factories and farms who would have profited from that visit. For a set of policies where any benefits appear small and uncertain, these costs alone might justify a reassessment.