A Review of Remittance Effects on the United States
As the debate around immigration becomes more charged in today’s political climate, immigration opponents begin to look more closely at remittances as a negative outflow from the host country. They contend that immigrants work, use resources, and earn money in the United States, yet choose to transfer money out of the country, contributing not to the United States’ GDP, but to others’. It is important to focus on the effects of remittance from the United States, especially when a staff of the US Selection Commission dismisses remittance as “a drain on the economy” adversely affecting the US economy (qtd. in Simon 161), and especially when President Trump plans to halt money transfers from Mexican immigrants to force Mexico to pay for the border wall (CBS Los Angeles 00:00:03-00:00:58). If this plan comes into effect, it will not only directly affect 12 million Mexican immigrants residing in the US, but also become grounds for drastic immigration reform, affecting 47 million immigrants as of 2015 (“United Nations Population Division”). In this essay, I want to call attention to the three points that remittance opponents overlook: (1) the immigration’s net positive benefit to the host country, (2) the possibilities of remittances being recycled back to the economy, and (3) the potential cost to the United States with any policy to limit remittance.
The first fallacy of remittance critics is that they fail to consider the net economic benefit of immigrants to the host country, instead choosing to scrutinize only remittances. This net effect of immigrant workers has been proven to be positive (Adams & Page 1645-1669; Acosta et al.). To see this positive effect more clearly, in an article titled “Immigration Reform and the American Worker” on The New Yorker, James Surowiecki, an American Journalist whose works focusing on business and finance has appeared in a wide range of publications, reaffirmed that immigrant workers not only fill the high-skill positions and promote innovation through research and entrepreneurship, but also fill the low-skill positions that native workers are unwilling to take, thereby allowing specialization and enabling American workers to be more productive. Surowiecki takes an example of construction work, where immigrants tend to work as masons, bricklayers, and other positions which require few skills other than manual labor. With immigrants taking on those positions, native-born workers can specialize in jobs which require more interpersonal skills such as crane operators and foremen, who in turn supervise immigrant workers. This example showing that immigrants complement American workers in the job market has been proven to hold long-term benefits to the economy without any short-term costs of lower wages and greater unemployment among the natives (Card qtd. in Davidson). Given this net benefit to the workforce, it would be unfair and selfish for the United States, a beneficiary of immigration, to strip those workers off their freedom of choice with their hard-won money by opposing remittance outflows.
Besides failing to consider the net benefit of immigration, remittance opponents also overlook remittances’ roles in reducing poverty in developing countries. This transfer of money sent to families from relatives abroad acts as an additional source of income for domestic families and therefore provides them with a powerful means to combat poverty at home (Kitroeff). As in the case of Mexican immigrants portrayed in Tobar’s non-fiction Translation Nation, the immigrant couple Frankie and Linda are willing to cross the border to the United States to work, leaving their son behind and hoping to make enough money to send home, so that the family could get insurance, could escape poverty (Tobar 100). This real account of immigrants’ sending remittances and wanting to escape poverty not only helps explain the role of such practice in bettering living conditions at home, but also underlines the economic drive behind immigration from developing to developed countries. In fact, in Haiti, remittances account for nearly one third of the country’s GDP (World Bank 2016); or in Tajikistan, nearly half of the Tajik man in working-age are now abroad working, sending back remittances and boosting the domestic economy (Duschanbe). As Mexico’s President Peña Nieto, in response to President Trump’s plan to halt the money transfer to Mexico, asserted in January 2017 that "we must assure the free flow of remittances… [Remittances] are an invaluable contribution to national development and indispensable for millions of Mexican families" (qtd. in Gillespie). With remittances overtaking oil and becoming the largest foreign source of income in Mexico (Estevez), President Peña Nieto’s statement calls for freer restrictions regarding remittances in the United States and at the same time stresses the role of this transfer of money in helping his country’s economy.
Some skeptics may ask why the United States should care about the economic progress in its neighboring countries. One reason is that the improvement of economic conditions in developing countries in the mid to long run will finally lower immigration flows (Meseguer). A similar study published in International Economics Journal found a positive correlation between the host country’s policy of making migrants successful and lower migration rates (Naiditch et al. 24). This decrease in migration in the long run, provided remittances can flow freely, will not only please immigrant worker critics, but also imply better living conditions in previously sending countries and ensure economic stability in the host country without sudden inflow or outflow of migrant workers.
Moreover, not only does the economic progress in developing countries lower immigration rates, such progress in living conditions also leads to greater buying power in developing countries (Multilateral Investment Fund 3), which in turn expands US export growth, for a country’s export growth is much driven by the buying power in other counties. To be more specific, if families in Mexico use their remittances to buy things imported from the United States, then the United States economy would be better off: its trade increases, but its balance of payments – the difference in total value between payments into and out of a country over a period – remains unchanged since the money is recycled back to the US economy. Alternatively, if families in developing countries choose not to use remittances to buy the goods made in the United States, America loses dollars, but no actual goods or services, for the immigrants have already supplied their labor in the host country in exchange for their salary.
To complicate matters further, some people contend that remittances cause GDP losses if the money is not recycled back, for this amount of money does not contribute to consumption and investment activities in the country. While I understand their economic reasoning behind the argument, it is very unlikely that remittances will cause significant losses in the United States GDP. The amount of remittances that foreign workers send home in 2015 ($56.3 billion) is minute (0.37%) compared to the GDP of the United States (Benton), and therefore would hardly make any noticeable GDP shortfall whatsoever in the local US economy. In fact, in Saudi Arabia, another major remittance-sending host country in the Middle East, research has shown that the outflows of workers’ remittances have insignificant effect on GDP in the long run (Alkhathlan 698). Although Saudi Arabia and the United States may have different geographical and social structures, their current policies of no taxation towards expat remittance sent abroad are similar. It is, therefore, unlikely that the effects of remittances will cause a shortfall in the US GDP.
Finally, President Trump’s plan to halt or put high taxes on remittance sent from the US would possibly be counter-productive to the host country economy itself. First, policies to limit remittances around the world have been proved to be short-lived and unbeneficial to the host country. In the International Monetary Fund 2006 report, the tax collections from remittance sent abroad in Colombia, Palau, and Gabon, where such tax law exists, were found to be insignificant and phased out quickly (IMF 22). Therefore, unless there is a major shift in economic behavior worldwide, the plan to limit remittances transferred out of the United States, similarly, would not work. Additionally, such plan might also trigger off a trade war between the US and other countries. In 2009, in response to Oklahoma’s putting a $5 tax on each remittance transaction in addition to 1% charge on every transfer that exceeds $500, Mexican Chamber of Deputies urges the federal government to stop all governmental purchases of goods produced in Oklahoma until the remittance tax law is repealed, for the assembly dismissed the remittance tax as “blatantly discriminatory” and “clearly meant to target the Mexican migrant and undocumented populations” (Says). On a wider scale, a remittance tax law nationwide could put the United States in a position against Mexico – one of the United States’ biggest trading partners – and trigger off a trade war, which could damage the US prosperity -- damage what remittance opponents consider their end goal.
To conclude, those who oppose remittances from immigrants often see this transfer of money as a choice between gains and losses to the US economy; however, the issues of remittances hinges more upon immigrants’ benefits to the host country’s economy, upon immigrants’ benefits to their source countries’ economies, and upon the cost of remittance restriction to the US economy. The world today is not a zero-sum world, where a policy that profits another country hurts America; instead, it is a world where any country can mutually gain from trade, from integration, and even from the simple act of transferring money overseas (Sandefur). By restricting remittance outflows, the United States not only hinders the socioeconomic advancement of other developing countries, but also hinders its own economic progress with such authoritarian remittance policy. Immigrant workers’, therefore, should be given freedom to send money abroad while simultaneously benefiting the host country’s economy.
See full list of works cited here.