07/23/2004: "Stalling the Engine of Growth in a Global Economy"
US-VISIT (United States Visitor and Immigrant Status Indicator Technology) is a program intended to improve the information collected on foreign nationals traveling to and from the United States. It is an outgrowth of enhanced concerns over security issues before and especially after the tragic events of September 11, 2001 and is currently being implemented at air and sea ports of entry. Its implementation at land ports along the US-Canada and US-Mexico borders is scheduled to occur in the near future, despite significant shortcomings in personnel, infrastructure, and technology (particularly at ports of entry for Mexico).
While one of the stated goals of the program, improving US homeland security, is clearly a worthy aim, it is not at all apparent that US-VISIT is the optimal (or even a viable) method for achieving this objective. In fact, the US-VISIT program has been called into question by the US General Accounting Office (GAO), which in a recently released report described it as a high-risk endeavor.
US-Mexico trade represents a crucial source of business activity for virtually all regions of the US. The flow of goods and people across the US-Mexico border is vital to the ongoing economic health of families, corporations, cities, regions, and states. The land port segment of the US-VISIT program involves tremendous harm to the national, state, and regional economies. Even under conservative assumptions regarding the increase in time required for crossing the US-Mexico border, hundreds of thousands of jobs will be lost. If delays prove to be more disruptive (up 75%), the job losses could top 1,400,000 in the US and 800,000 in Texas. These effects are concentrated in the manufacturing sector and other key drivers of the domestic economy.
The program is likely to prove particularly damaging to the economy of the border region, which is home to concentrations of manufacturing concerns relying on cross-border trade, retail stores where Mexicans tend to shop, and real estate developments with historically high rates of ownership by Mexican nationals. Many of the advantages of the North American Free Trade Agreement (NAFTA) will essentially be reversed if US-VISIT is implemented as currently proposed. In essence, US-VISIT will impair the competitiveness of goods crossing the border in much the same way as a tariff.
In particular, the manufacturing sector would lose more than 465,800 jobs in the 75% scenario. Given that manufacturing sector performance is a critical component of ongoing American prosperity and the current concern over “offshoring” of domestic production jobs, it is imperative that actions such as US-VISIT receive extremely careful scrutiny as they have the potential to do substantial damage to the US economy.
Because much of the lost trade represents integrated production activity, the ramifications extend to US competitiveness on a global scale. Manufacturers on both sides of the border utilize “just-in-time” (JIT) inventory management techniques. Delays caused by US-VISIT will reduce the ability of firms depending on border crossings for deliveries to utilize JIT techniques, thus hampering their performance and that of the border, state, and national economies.
US manufacturing concerns will also generally become less competitive as a result of US-VISIT. In effect, constraining the free flow of goods across the border raises the costs to US manufacturers. As they are less able to compete in the global economy, they face reduced demand for their products and shrinking profits. In particular, the US and Mexico stand to lose ground relative to every Asian competitor.
There is a substantial component of retail trade, particularly in US border areas, that will be affected by US-VISIT regulations. Mexican shoppers form an important market for stores in the US, and delays in border crossings could significantly reduce this activity. Banking relationships are also likely to be affected, with border financial institutions potentially seeing a reduction of more than $2 billion in deposits. Healthcare providers in Texas stand to lose more than $3 billion in yearly revenue. Housing values in the border region would decline by 2.8%-10.6% depending on the severity of the delays, thus causing a substantial loss of household wealth.
The Department of Homeland Security’s goals for US-VISIT include facilitating legitimate travel and trade, enhancing national security, and adhering to US privacy laws and policies. The desirability of achieving these goals is beyond question.
However, it is unclear that the program is capable of achieving these objectives given the current state of technology and other issues. At the same time, implementing US-VISIT along the US-Mexico border could prove to be devastating to certain types of business activity and the economies of specific geographic areas. Implementation of the US-VISIT program as currently proposed would result in needless economic disruption, a loss in competitiveness of US manufacturing concerns, and myriad other problems.