Education Exports Help Offset U.S. Trade Deficit—But New Tariff and Visa Policies Threaten Gains

Trade brought Chinese students to U.S. universities — a trade war may drive them away

Newswise — As U.S. policymakers increase tariffs on goods, particularly those imported from China—a new study from the University of California San Diego School of Global Policy and Strategy finds the opposite may be needed to protect one of the country’s most powerful economic exports: higher education.

The study, forthcoming in the Review of Economics and Statistics, focuses on China’s 2001 entry into the World Trade Organization (WTO), 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.

“In a very real sense, international students are reversing the trade deficit,” said Gaurav Khanna, associate professor of economics at UC San Diego’s School of Global Policy and Strategy 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.”

Analyzing visa records, trade data, and city-level economics, the researchers show that Chinese cities, like Qingyang and Shantou, that had more exposure to WTO-related tariff reductions sent significantly more students to the U.S., compared to cities with less exposure, like Wuwei and Lincang. In fact, a 10-percentage point 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.

However, tariff policies that are designed to slow China’s manufacturing sectors will reverse this trend.

Billions in Tuition Revenue at Risk  

The researchers 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.

With higher and more tariffs in the second Trump administration, the impacts will likely be larger —and increased visa restrictions are expected to make matters worse.

That figure doesn’t include the broader economic contributions international students make—such as spending on housing, transportation, and local services—or the long-term benefits to the U.S. workforce and innovation ecosystem.

“Policymakers often talk about soybeans, oil and steel,” Khanna added. “But education contributes more to the U.S. economy than any of those. It’s an export we ignore at our own peril.”

How International Student Enrollment Has Helped Offset State Funding Cuts

The composition of Chinese students has shifted over time. Once dominated by graduate-level STEM enrollments—many of them scholarship-supported—the post-WTO boom analysed in the study (2000 to 2013) saw growth in undergraduate students studying business and social sciences, often paying full sticker price.

Khanna points to his previous research showing how non-resident tuition benefited U.S. universities suffering declines in state funding. For example, between 1996 and 2012, a 10% reduction in state appropriations was associated with an increase in foreign enrollment of 12% at public research universities. 

“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.

Many public U.S. colleges, including the University of California, turned to international student tuition, rather than sharply increasing the tuition of in-state students in order to make up for shortfalls in state funding.

However, Khanna notes there has been a dramatic deceleration in international student flows in recent years. 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. 

How the Exchange of Education has Historically Been One of the U.S.’ Biggest Advantages 

The authors argue that understanding the relationship between trade and migration is crucial—not only for universities but for U.S. foreign and economic policy writ large.

“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.”

In 2019, education exports added $45 billion to the U.S. economy. Today, with student inflows slowing and competition rising from other countries, the study offers a timely reminder of what’s at stake.

“America’s edge has always been its universities,” Khanna said. “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.” 

The study was co-authored by Kevin Shih of City University of New York–Queens College, Ariel Weinberger of George Washington University, Mingzhi Xu of Peking University, and Miaojie Yu of Liaoning University.

[News Wise/VP]