During his first administration, Donald Trump took steps to curtail H-1B immigration. He reiterated those sentiments again during his reelection campaign, but in December he walked back his criticism, saying “it’s a great program.” Steve Bannon denounced the reversal, calling the program a “scam” that only benefits corporations; in turn, Elon Musk stated he would “go to war” to defend it. At the same time, Trump’s economic team was leaking to the Washington Post that he doesn’t really intend to implement big across-the-board tariffs, as he promised during his campaign. Trump rejected the report, posting on his Truth Social platform that he does indeed intend to have big tariffs. Then, on Inauguration Day, he promised to sign an executive order by February 1 that imposes 25 percent tariffs on all goods imported from Mexico and Canada, and now has expressed an intent to put a 10 percent tariff on imports from China.

The constant stream of mixed messages makes it hard to know exactly what will happen on these fronts, but it’s worth getting clear on how both of these policies affect the economy. Will tariffs help the working class? And who exactly benefits from H-1B programs?

In the context of the U.S. economy today, we can be sure that taxing imports won’t help the working class.

To answer those questions, it’s essential to come to terms with two key features of the U.S. economy today. First, most of the upward redistribution of income since 1980 has been from ordinary workers to high wage earners, such as highly paid professionals (many of them in tech), Wall Street types, and top-level executives. A simple statistic that captures this story. In 1983 only 10 percent of wage income exceeded the cap for wages subject to the Social Security tax; now close to 20 percent does. What’s more, the cap has been increased in step with the average wage, so this means the share of wage income going to the roughly 6 percent of workers earning above the cap has almost doubled. Meanwhile, there was little change in the capital share of income from 1980 to 2000; most of the upward redistribution had already taken place. This point is hugely underappreciated by many progressives who see the story of upward redistribution as simply a shift from wages to profits. The trend involves a lot of redistribution to higher wage earners, too.

Second, the changes over the last four decades are not reversible, largely because of the loss of unionized manufacturing jobs. In prior decades, workers in manufacturing received substantially higher pay and compensation than comparable workers in other industries. But the manufacturing wage premium has been largely eliminated by competition with imports from developing countries with low-paid workers. This can be readily explained by the fact that the sector is no longer especially heavily unionized. Back in 1980, some 32 percent of manufacturing workers were in unions, compared to 20 percent for the private sector. Today, the union share in manufacturing is down to 8 percent, only slightly higher than the 6 percent average for the rest of the private sector. The point is that unions, not the factories themselves, were the reasons manufacturing jobs were good. Simply increasing the number of manufacturing jobs will not likely produce well-paying jobs.

The moral is that there is no reason that people interested in reducing inequality should care about manufacturing jobs, as opposed to any other job. And reducing inequality entails more than reducing corporate profits; it requires reducing the share of income going to high earners.


In this context, we can be sure that taxing imports won’t help the working class. The Biden administration imposed tariffs that were mostly designed to support the industries whose domestic growth is considered important for the United States—for example, advanced computer chips, electric vehicles, and solar panels. He also left in place some Trump tariffs as part of his anti-China policies. There is a plausible national security argument for increasing domestic production in these areas: in the event of a military conflict with China, the United States would presumably not want to be heavily dependent on advanced chips from Taiwan.

The merits of the case for protecting these specific industries can be debated, but they are very different from across-the-board tariffs, as Trump has proposed. His claim that countries are “taking advantage” of the United States because they have trade surpluses with us is nonsensical. A trade surplus means that they are effectively giving us goods and services that we are not paying for in the present. This is like saying a store is ripping you off because it lets you buy things without selling it back something in exchange.

It is also worth noting what a wide range of products we import, which would in principle all be subject to the sort of universal tariff that Trump is proposing. Our total imports of goods last year was a bit over $4 trillion, which comes to more than $30,000 per family. Some imports are well known, such as the $400 billion we spent on trucks, cars, and other vehicles. We also imported a bit less than $100 billion worth of clothes and a huge volume of inputs into manufacturing, such as the $40 billion we spent on iron and steel and the $80 billion we spent on industrial machinery. And we import huge amounts of agricultural products such as coffee and tea, avocados and pineapples and wide variety of other fruits and vegetables. The total in this category came to over $180 billion last year.  

The effect of imposing tariffs is to raise the price of the goods being subject to the tax. While the increase will not necessarily be passed onto the consumer dollar for dollar, the bulk of the tax will surely be passed on in higher prices, even if importers may share the burden. Moreover, the price of domestically produced goods that compete with the taxed imports will also rise. This, in fact, is usually a deliberate goal of imposing tariffs—to allow domestic manufacturers to enjoy higher profit margins. For example, if we impose taxes on imported cars or steel, we can also expect to pay more for domestically produced cars and steel.

Tariffs are thus not a policy that will deliver Trump’s election promise of lower prices. It is also safe to expect other countries to retaliate. In the short term, they are likely to impose tariffs on the goods they buy from us; China, for example, shifted away from buying U.S.-grown soybeans in response to the last round of Trump tariffs. This would have had a devastating effect on many farmers, if the Trump administration had not paid out tens of billions in additional agricultural subsidies. In the longer term, Europe, East Asia, and even Canada and Mexico are likely to conclude that the United States is an unreliable trading partner and increasingly look to China, India, and elsewhere for their trade, leaving the United States less plugged in to world markets.

The fallout would go beyond prices, too. The UK’s weak growth following Brexit suggests what the United States can anticipate with the high-tariff route. The impact could be even larger here since Trump is making a virtue out of being unpredictable: instead of a one-time shift in trade, he promises to put up trade restrictions whenever he feels like it and has also made it clear that businesses and countries that flatter or even bribe him can expect special treatment. That is not the sort of behavior that promotes long-term trading relations.


As for H-1B immigration, it can be a net plus for the economy and the working class—if important changes are made. Musk has argued that we need H-1B visas to attract highly skilled worker to the United States, while opponents argue they are a glorified form of indentured servitude and depress the wages of U.S. workers. The truth is that there is reason for both criticism and defense.

H-1B immigration can be a net plus for everyone—if important changes are made.

H-1B visas are issued by lottery to foreign workers who have a job arranged with an employer in the United States. They are supposed to go to people with special skills in short supply in the United States, and they allow a person to work here for up to six years. Recipients can leave their initial employer and remain in the country if they arrange for a new employer to petition to transfer the visa. There are currently close to 600,000 workers in the United States on H-1B visas—just 0.4 percent of the total workforce, but admittedly a very large share of people employed in tech. These workers have undoubtedly contributed to the growth of the tech sector, which has helped to create many jobs, including many high-paying jobs, for native-born Americans. Nonetheless, the opportunity to hire foreign workers has undoubtedly depressed the pay of at least some native-born workers in the industry. Conversely, the program’s requirements empowers firms to underpay visa holders relative to U.S. workers in the same occupation.

For those concerned about lower-paid workers, pushing down the pay of relatively highly paid workers can be seen as a good thing. Their lower wages may boost the profits of tech giants, but they may also mean lower prices for the software in our computers, smartphones, and a wide range other items. And just as access to low-cost manufacturing labor in the developing world was a plus for highly paid professionals, who could buy cheaper cars and clothes and didn’t have to worry about the competition, access to low-paid programmers is a good thing for the non-college educated workers who are not competing for jobs with H-1B visas holders.

But to ensure that that the H-1B program is actually pulling in workers in highly paid fields instead of competing with lower-wage workers—and to protect their own labor rights—some changes to the program should be made. Most importantly, the minimum pay H-1B jobs is just $60,000, which hardly qualifies as highly paid. This minimum should be at least doubled. As a practical matter, however, almost no one is working on these visas for anywhere near that pay. The median pay is $133,000, which is close to the cutoff for the top 10 percent of all U.S. workers.

We should also facilitate a path toward permanent residency and eventual citizenship for these workers. Doing so is good not only for the visa holders, whose work is like indentured servitude if they are tethered to one employer, but also for the economy, if they have as much freedom as possible in their choice of employers and, of course, have the option to start their own businesses, as many have done in the past.


So much for the two economic flashpoints of Trump policymaking. What kinds of policies would help? The most obvious route for structuring the market so that more income flows to those at the middle and bottom ends of the income ladder is reversing the trend towards longer and stronger patents and copyrights. These government-granted monopolies are about the most blatant form of intervention imaginable, but somehow they get blessed as the “free market.” We transfer more than $1 trillion a year from consumers to the beneficiaries of these monopolies, who include some of the richest people on the planet.

Reducing inequality entails more than reducing corporate profits; it requires reducing the share of income going to high earners.

Take the pharmaceutical industry, which is built on patent monopolies. We will spend over $650 billion this year—that’s more than $5,000 per family—on pharmaceutical products that would likely sell for close to $100 billion in a free market without patent monopolies. The same is true of the software industry, which would look radically different if the government didn’t threaten to arrest anyone who makes copies of Microsoft software without the company’s permission.

We can also structure the market differently in the financial sector. The most obvious place to start is imposing the same sort of sales tax on financial transactions that we do on most other items. We can change the rules of corporate governance to make it easier for shareholders to rein in CEO pay. Top executives in Japan and some countries in Europe get pay packages that are less than a third of the pay of our CEOs. This is not because their companies are smaller or less profitable but because it is easier for shareholders to demand it. And CEO pay matters far beyond the head of the company. Bloated paychecks for CEOs distort pay structures throughout the economy. Top-level government officials now think they are making major sacrifices when they work for $200,000 a year.

These are the kinds of directions we should pursue to ensure that the gains of growth are more evenly shared. Obviously, this is not an agenda that Trump is about to embrace. It’s also not one embraced by many Democrats. But if the goal is reducing inequality, trying to bring back manufacturing jobs, that are not even especially good jobs, is foolishness, as is declaring war on the market. The first step in this effort is seeing the world with clear eyes.

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