June 06, 2019

Education's Unheralded Role in Trade

It is graduation season, and this year international geopolitics reach all the way into the world of higher education. Early this week, China sent out a rare note to students, warning of the risks of studying in the U.S.

This action seems to be part of the overall trade tension drama playing out between the U.S. and China. International students typically pay full tuition, which provides universities with the resources to offer financial aid to American students. As the dad of a couple of kids going to college soon, I can attest that those numbers get real.

The figures from China, in particular, stand out. There are about 360,000 Chinese students currently enrolled in higher education institutions in the U.S., triple the number from 2010. They are paying an estimated $14 billion per year into the U.S. education system itself and spending at least another $3 billion annually on things like dorm rooms and other living expenses. That tally arguably exceeds the $16 billion China spends on U.S. aircraft, which would technically make higher learning the largest U.S. “export" to China.

More broadly, U.S. higher education is a very popular export to the world. The U.S. enrolls 1.1 million of the 4.6 million students who study abroad from their home countries. The Federal Reserve Bank of St. Louis wrote a blog post earlier this year discussing the education trade balance, which uses data from the U.S. Bureau of Economic Analysis on “travel-for-education" to estimate that foreign students spend 3.5 times more money in the U.S. than American students spend abroad.

How would incorporating this data change our overall view of the trade deficit? We typically discuss the merchandise trade deficit, rather than including services like education, but the St. Louis Fed data notes that if the “education trade surplus" was taken into account, it would equal about 7 percent of the overall trade deficit and 12 percent of the trade deficit with China.

On an even broader scale, Ricardo Hausmann, a Harvard economics professor, writes about the value of U.S. technology as being “dark matter" unseen in the usual trade data. This, if it were included, would radically affect the numbers.

My view: If Dr. Hausmann's argument is right, it would radically change how we approach our trading relationships around the world. Such is the value of education, which - at least at the college level - is one of our best exports to the world.

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