A Poor Excuse

There is little doubt that the United States—and much of the rest of the world—is facing an economic and financial crisis of historic proportions. In the fourth quarter of 2008, the American economy shrank by 6.2 percent, and last month the official unemployment rate reached 8.1 percent, a figure not seen in a quarter-century. Nor has the Obama administration been idle. On Feb. 17, the president signed into law the American Recovery and Reinvestment Act, which calls for the government to spend $789 billion over the next two years in an attempt to revive the flagging economy.

The quick action by the president and his advisors in the midst of this truly frightening recession deserves praise. We are disappointed, however, that certain members of Congress have used this recession as an excuse to enact legislation that makes it all but impossible for financial firms to hire skilled foreign graduates of American universities, including Harvard. A little-known provision in the ARRA classifies all firms receiving federal bailout funds from the Troubled Assets Relief Program as H-1B dependent, legally mandating them to find American citizens or legal permanent residents to fill any job opening before offering a position to qualified international applicants.

This new policy is misguided and harmful for several reasons. First and foremost, the turn toward protectionism in the labor market mandates that the United States essentially throw away much of its already-sparse annual investment in human capital. Every year, American colleges and universities invest millions of dollars in the education of talented students from overseas. Considering the depth of the current crisis, it is foolish to turn away thousands of highly skilled, incredibly productive, and well-qualified candidates on the basis of their nationality.

Moreover, closing the job market to highly skilled workers from abroad is detrimental to the international competitiveness of the U.S. economy. If foreign graduates of American universities are unable to find work in the United States, they are likely to take jobs in other countries with more liberal immigration systems, such as the United Kingdom, Canada, or New Zealand. As such, the debate over the H-1B program is not merely a question of “saving American jobs”—these new policies could actually threaten our nation’s long-term economic health and our global authority.

This policy is likely to be especially devastating to international students at Harvard and similar institutions. Many firms that hire extensively from the College, Law School, and Business School are heavily affected by the new restrictions. The onerous burden placed on the financial industry by the ARRA will make it difficult for employers to hire the best and brightest at a time of international crisis.

Nor has the attempt to close America’s borders been limited to the labor market. Initial versions of the stimulus package that underwent congressional and international scrutiny would have forced all infrastructure projects receiving money from the federal government to “buy American,” using only American steel in the construction of roads and bridges. Thankfully, this provision did not make it into the final bill that was signed into law. But the “Buy American” controversy is indicative of a turn toward a protectionist trade agenda, especially in the anti-immigrant lobbies of the Republican Party and the labor-union wing of the Democratic Party. This is a trend that should be combated at every turn, especially during a recession of this magnitude.

Indeed, congressional leaders would do well to learn from the lessons of the past. Nearly eight decades ago, as the Great Depression was beginning to plunge the United States into ever-greater economic peril, Congress—at the behest of the agricultural and industrial lobbies—passed the highest set of import duties in American history, the Smoot-Hawley Tariff Act. The results were disastrous; according to the State Department, “while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures… Such policies contributed to a drastic decline in international trade.”

The consequences of the 1930 tariff package were not limited to economic warfare; the collapse of international trade destroyed the fragile geopolitical stability that had been created after the end of the First World War. Weimar Germany’s economy, already suffering from hyperinflation and political polarization, all but collapsed as a result of the tariff war, leading to the meteoric rise of the National Socialist Workers’ Party in the parliamentary elections of 1932. Today, Hungary and Ukraine are in danger of defaulting on their already-generous IMF loan packages, while South Korea, Taiwan, and Japan fear for the long-term health of their economies. If America slides into protectionism, the relative geopolitical stability of the post-Cold War era may come into question.

During his presidential campaign, then-Senator Obama continually spoke of the need to restore America’s standing in the world. But if the Obama administration presides over a turn toward protectionism and a return to the failed methods of the past, its policies will be as misguided as those of its Depression-era predecessors. As a nation dependent on the creativity and high productivity of its tertiary sector, the United States will need all the help it can get to recover from this devastating recession. Unfortunately, current policies are likely to exacerbate, not alleviate, present economic pains. President Obama and the Democratic leadership in Congress ought to reconsider this potentially costly mistake.