How Trump's H-1B visa plan may hit US economy

US President Donald Trump’s proposal on Friday to begin charging a $100,000 (€85,000) application fee for the H-1B visa for highly skilled foreign workers has left the country’s tech sector and universities scrambling to figure out the implications.

The announcement came in a so-called proclamation claiming that H-1B visas have been “deliberately exploited to replace, rather than supplement, American workers with lower-paid, lower-skilled labor” and that “systemic abuse of the program has undermined both our economic and national security.”

Since its introduction in 1990, the H-1B visa program has been mostly used to provide the tech industry with highly skilled foreign workers. There is a limit to the amount of H-1Bs made available each year.

The current limit is 65,000, with an additional 20,000 for nonresidents who graduate with a master’s degree or higher from a US institution.

People in “computer-related” occupations currently account for about two-thirds of visa holders.

Immediate implications for the US economy

Michael A. Clemens, professor of economics at George Mason University in the US state of Virginia, told DW that the announcement has caused “extreme chaos” and many aspects, including its legality, remain uncertain.

“People are still figuring out what this extraordinarily hasty and shock policy announcement even means,” Clemens said. “The best interpretation, I think, that we have now is that it is a $100,000 per person payment that applies to at least a new initial employment.”

The initial Trump statement did not clarify if the fee would apply each time a current visa holder reenters the United States or if it applies to renewals or existing holders.

Although White House press secretary Karoline Leavitt has since said the fee would be a one-time application fee only that does not apply to current holders, those comments appear at odds with Commerce Secretary Howard Lutnick, who said last week that the fee would be applied annually.

Regardless of the exact terms, there is considerable dismay over the immediate implications among economists.

Clemens said the potential loss of talent would be a “tremendous economic loss” to the US economy. 

Jeremy Robbins, executive director of the nonpartisan American Immigration Council, told DW that he expects to see large multinational companies immediately move operations to other locations if the plan comes into effect.

“We’re going to see it dramatically handicap our ability in key economic and national security industries like artificial intelligence and quantum computing,” Robbins said. “A lot of the talented individuals around the world who want to come here and innovate start looking for somewhere else to go,” he added.

Who will be most affected?

Clemens said universities and nonprofit organizations currently accounted for more than one-third of H-1B visas and they would largely be unable to pay such high fees to hire the necessary workers.

This would mean a “massive hit to the ability of any university to hire foreign faculty to attract the best and brightest researchers” and an “obliteration of any nongovernmental organization’s ability to hire such people.”

Other critics have underscored the detrimental impact on startups and smaller tech firms.

Garry Tan, chief executive of startup incubator Y Combinator, wrote on the messaging platform X that the decision “kneecaps startups.” 

“In the middle of an AI arms race, we’re telling builders to build elsewhere. We need American Little Tech to win, not $100K tollbooths,” he said.

Clemens said it would be “all but impossible” for smaller startups to hire the necessary people if they had to pay such fees. “It will devastate their prospects,” he added.

Huge Silicon Valley companies such as Meta, Google and Amazon are among the biggest H-1B users, relying on the program to provide scientists and engineers. Their massive revenues mean they could likely pay the fees anyway, but could also seek exemptions.

Is there any legitimacy to Trump’s claims?

The White House claims that the H-1B system is being abused and that it disadvantages US workers.

Robbins said the system was in need of reform, pointing out that it was designed in the late 1980s and needs to be upgraded for the modern economy, with attention given to exactly how firms use it and from which sectors.

He said protections for American workers were “probably not where they need to be.”

“That’s why I think certain organizations like ours have been hugely in favor of reforming the H-1B system, of making sure that it is something about attracting talent and not about finding cheaper workers,” he said.

He added, however, that even in its “broken state,” studies consistently prove how much the visa system “creates jobs, drives innovation and contributes dramatically to the gross domestic product.”

Robbins said US tech workers were “not being disadvantaged by the program” because unemployment among high-skilled US tech workers has been “dramatically low, in the 2% range for much of the last 10, 15 years.” 

Clemens said abuse of the program was “a reality,” but added that there are already regulations in place to deal with this.

As the US Department of Labor “investigates frequently” the firms’ compliance with the rules of the program, Clemens said, it “does find violations.” 

“That’s certainly a case for enforcing the law and prosecuting violations, but taking the entire class of immigrants and imposing on all of them an astronomical penalty has nothing to do with that,” he said.

What are the long term consequences?

As companies, universities, nonprofits and other users of the H-1B visa program try to figure out the next steps, the experts agree that, if the Trump administration proceeds with its $100,000 application fee, it will damage US economic innovation in the long term.

Clemens said “decades of extremely rigorous, peer-reviewed studies” on the effects of H1B workers “consistently point to one result: benefits for the local economy.”

“Wherever they go, they cause more patenting, they cause the formation of more high-growth, venture capital-backed startup firms and they dynamize local economies,” he said.

And Jeremy Robbins said one of the US’s “greatest strengths” was that the country is “a place where more talented people around the world want to come than any other,” adding that it would be a “very risky proposition to put that in jeopardy.”

Edited by: Uwe Hessler