30/01/2017 1:23 PM AEDT | Updated 30/01/2017 1:24 PM AEDT

Trump's Immigration Ban Is Bad For Business

The executive order presents a host of problems for US companies.

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Thousands fill the street outside Terminal 5 of O'Hare International Airport in Chicago in protest of President Trump's order to ban people from seven predominantly Muslim countries from entering the United States.

President Trump's executive orders on immigration have come under attack. The executive order freezes refugee intakes and immigration from several Muslim-majority countries. The order's worst impacts are at the human level. It inflicts untold harm on refugees and prospective immigrants. It also poses a clear business risk.

The orders have been criticised for being islamophobic and for antagonising allies. Iran has labelled them a "clear insult to the Islamic world". Senator John McCain highlights that it signals that "that America does not want Muslims coming into our country". The American Civil Liberties Union echoed as much. This characterisation is problematic for the US and is bad for business. This is more the case when packaged with recent US-Mexico interactions and the argued racial overtones.

The executive order presents a host of problems for US companies. It impacts labor, it generates sovereign risk, and it jeopardises US business in the subject countries, and, potentially, the Muslim world more widely.

Loss of existing labor and ability to hire

The order has negative effects on existing employees. Green Card and H1-B holders are impacted. They are prima facie barred from entering the US unless they get an exemption. While they can seek an exemption, the details surrounding it are currently opaque, and quite possibly, any relevant documentation could have been left in their home in the US, making it difficult to seek an exemption.

Subsequently, Google recalled 100 staff after the order in the hope they could return before the order came into effect. Given that green card and H1-B visa holders are impacted, the order prevents such employees from traveling on international business. The ban prevents up to 500,000 legal US entrants from returning home. This impacts future business efficacy for companies with business in any of the impacted countries, or employees from those countries.

Given that the order effectively bans 218 million people from entering the US, the order clearly reduces the prospective labor pool, and could prevent firms from obtaining high-quality talent.

Future hiring is also impacted. US firms cannot hire from the impacted countries and assume that they can obtain a Green Card, H1-B visa, or even entry to the United States. Given that the order effectively bans 218 million people from entering the US, the order clearly reduces the prospective labor pool, and could prevent firms from obtaining high-quality talent.

The order also has longer term impacts. By banning such large numbers of people, university entrances are impacted, reducing future scientific output. Similarly, given that the order has been interpreted as Islamophobic, a less easily documented impact is on the attractiveness of the US as a destination for the Muslim world in general.

The impact is potentially more far-reaching. The order covers seven countries. However, it was premised on preventing terror attacks, however none of the September 11 bombers originated from any of the seven countries in question. This raises the risk that the order could be extended to other countries, such as Saudi Arabia. Given the optics of the order being an attack on Muslim countries, the fear could plausibly extend to the Muslim world more generally. This chills the ability to hire from those countries and reduces the US's attractiveness to labor in those countries.

These concerns have induced a backlash from the tech industry, including from Google's Sundar Pichai, Facebook's Mark Zuckerberg, and Uber's Travis Kalanick.

The increase in sovereign risk

The order creates sovereign risk. This increases the risk that rules will unexpectedly and adversely change and deters business. Kellyanne Conway, Counsellor to the President, acknowledged on Fox News Sunday that the order had created short-term chaos.

The order contributes to a pattern of haphazard executive orders and actions. It comes on the back of a cancelled meeting with the Mexican president in the wake of a dispute over the potential wall, an incident that the Wall Street Journal called "amateur hour". Further, a recent executive order apparently changing privacy protections for European companies, in seeming contradiction with established law, has disquieted the European Union.

The executive order has created confusion. Republican Senator John McCain has stated on Face the Nation that "obviously this process and these conclusions were not vetted", which he and Senator Lindsay Graham reiterated in a separate statement. Added to this is the arbitrariness of exempting from the executive order foreign green card holders on a case-by-case basis. The rules guiding this case-by-case analysis are not clear or defined. This is in addition to Chief of Staff Reince Priebus raising the possibility on NBC of extending the ban to other countries. This arguably undermines the rule-of-law by raising the risk of ad hoc, and inconsistent, application of law.

This order contributes to the atmosphere of sovereign risk. It is a sudden change to whether and how companies can operate in the US. This executive order applies directly only to people from the seven impacted countries. However, it indirectly impacts other corporations operating in the US. It also risks impacting other countries to which it might be extended, following Reince Priebus's comments. Further, it contributes to a pattern of conduct that suddenly changes existing laws and risks business.

Barriers to international business

The orders have antagonised Muslim majority countries. Iran has criticised the measures and has banned US citizens.

US companies cannot easily do business in Iran if their citizens are barred from entering. Continued antagonism risks this spreading to other countries. This is a problem because companies often want at least a local office to conduct business in that environment. They also need to conduct meetings in those countries.

Foreign consumer sentiment could also be affected, given the anti-Muslim characterisation of these laws. While the seven affected countries are not the US's largest trading partners, they constitute up to 1 percent of US imports and 0.25 percent of US exports of goods, according to US census data, as illustrated below. Risking any trade, at a time when President Trump has backed out of the TPP and has raised concerns about NAFTA, is potentially destabilising.

Mark Humphery-Jenner
Proportion of US trade coming from the affected countries, by year. Source: Analysis of data from the US census.

On mass, the immigration executive order has the potential to harm US business and US trade. This is in addition to the ethical and diplomatic concerns that it otherwise raises.