America, take note: Raising the drawbridge means lowering growth prospects

Until recently, the case for liberal commerce was mostly taken for granted. As Americans are now discovering, high tariffs make many of the things they want to buy more expensive. That will depress consumers’ real incomes and make almost everybody worse off. The gains from trade are widely shared and, given time, obvious.

The gains from immigration, by contrast, go disproportionately to immigrants themselves. Natives might see that as no reason to welcome them , especially if it also means higher taxes, fewer jobs and lower wages for those who were there first.

There’s no denying that immigration is good for migrants. Yet, trade-offs notwithstanding, it’s a fallacy to think their gains impose a net cost on everybody else. Overall, the hosts gain too, and not just a little. Squeezing immigration will probably harm the US even more than taxing imports.

Many governments worry these days about worsening demographic pressures. If the naive case against immigration were correct, shrinking proportions of workers to dependents should be celebrated. Fewer workers would mean a tighter labour market and push wages higher. Workers’ living standards would rise as their numbers decline: The fewer workers, the better.

Why is this wrong? Because adding workers generates an economic surplus for other workers and for the economy as a whole.

Immigrants tend to be disproportionately of working age, so they reduce the ratio of dependents to workers, which eases what would otherwise be a growing fiscal burden. Far more important, immigrants tend to be disproportionately hard-working, enterprising, adaptable, mobile and ambitious. (If they weren’t, they’d stay put.) Get this right, and the gains that follow are colossal: Just reflect on the economic pre-eminence of the US, and the role that immigration has played in its history.

Increasingly, economists are showing exactly why and how much this source of economic advantage matters.

The connection between immigration and innovation is crucial. In country after country, skilled immigrants have driven more innovation and faster growth in productivity. One notable study found that between 1990 and 2010, US immigrants with H-1B (skilled worker) visas accounted for between 30% and 50% of the country’s productivity growth.

Michael Clemens, one of America’s most eminent migration scholars, reports that skilled immigrants cause more patenting of new inventions and start more fast-growing businesses, leading to more high-paying jobs for native workers, skilled and unskilled alike.

The Trump administration has announced that H1-B visas will now be subject to a $100,000 tax per worker. No question, this programme is a mess and needs reform: It’s subject to an arbitrary cap and lets employers game the system in ways that diminish its benefits.

The new tax solves neither problem. It makes as much sense as it would to tax innovation directly. Here’s an idea: Throttle long-term productivity and shrink the economy to prop up some wages and raise short-term revenue.

To tout the benefits of immigration is not to argue for ‘open borders.’ Borders should be secured and immigration orderly and controlled. Blurring the line between refugees and economic migrants, as migrants’ advocates tend to, is a mistake; different considerations should guide policy in each case—ethical demands in the first, the economic self-interest of natives in the second.

Abrupt increases in immigration can burden communities and be needlessly disruptive. Even well-managed immigration can dampen the wages of competing native workers and pose fiscal challenges by adding to demand for local public services. Permission to immigrate, even temporarily, is indeed a privilege and should come with strings attached.

The main thing is to understand that, for natives and not just migrants, immigration is an enormously valuable economic opportunity. At the same time, it can impose costs on some places and people. As with trade, labour-saving automation and ‘creative destruction’ in general, governments shouldn’t deny the losses and should do more to help the losers.

But a political system fit for purpose would put the emphasis where it belongs—on promoting citizens’ opportunities and economic security, and not on blocking economic growth. ©Bloomberg

The author is a Bloomberg Opinion columnist.