A study from UC San Diego's School of Global Policy and Strategy found that a trade war with other countries, particularly China, could torpedo one of the United States' most important exporting industries — higher education.
The researchers of the study, scheduled to be published in the Review of Economics and Statistics, estimate that the tariffs levied on Chinese imports during the first Trump administration led to a 25% drop in students from China studying in the U.S., costing U.S. universities $1.1 billion annually in revenue.
"In a very real sense, international students are reversing the trade deficit," said Gaurav Khanna, associate professor of economics at UCSD and coauthor of the study. "America imports goods from China but exports education in return. That has been a win for both economies — and one that a trade war risks unraveling."
The study focuses on China's 2001 entry into the World Trade Organization, an action which dramatically boosted Chinese exports to the U.S. and household incomes in certain Chinese cities — making American college tuition suddenly affordable for many families.
Analyzing visa records, trade data and city-level economics, the researchers found that Chinese cities that had more exposure to WTO-related tariff reductions sent significantly more students to the U.S., compared to cities with less exposure. A 10% increase in trade exposure generated 34 more students per million city residents, accounting for about 40% of the surge in Chinese student enrollment between 2002 and 2013, according to a UCSD statement.
However, tariff policies that are designed to slow China's manufacturing sectors will reverse this trend, they claim. In 2019, education exports added $45 billion to the U.S. economy. Increased visa restrictions are likely to hurt this trade as well.
"Policymakers often talk about soybeans, oil and steel," Khanna said. "But education contributes more to the U.S. economy than any of those. It's an export we ignore at our own peril."
The billions likely to be lost in tuition doesn't even include spending international students do while in the United States such as housing, transportation and local services.
While the majority of Chinese students who came to the U.S. after China's entry into the WTO were coming for graduate-level STEM (science, technology, engineering and mathematics) enrollments, that has shifted over time. Now, more head to the United States for undergraduate degrees in business and social sciences — and many pay full sticker price.
Khanna references his previous research showing how nonresident tuition benefited U.S. universities suffering declines in state funding.
"Universities had to choose between increasing tuition levels and cutting expenditures — such as decreasing academic offerings to in-state students, or enrolling a greater proportion of students who pay out-of-state tuition," he said.
The University of California was one of these institutions, relying on international student tuition rather than sharply increasing the tuition of in-state students.
Khanna said recent political decisions have created a sharp decline in the flow of international students. Yearly growth of Chinese students in the U.S. averaged about 22% between 2007 and 2013, but has since fallen to under 5% per year.
"There's often an assumption that trade and immigration are substitutes," Khanna said. "What we found is that they can be powerful complements. Trade helped create a middle class in China that saw U.S. education as both a pathway and a product.
"America's edge has always been its universities. If we make it harder for international students to come here, we're not just closing the door on students — we're closing the door on one of our biggest trade advantages."
