Who Loses—and Maybe Wins—From Trump’s New H-1B Fee

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1:43Bloomberg Audio Studios. Podcasts. Radio. News. Everyone's going to be happy, and we're going to be able to keep people in our country that are going to be very productive people, and in many cases these companies are going to pay a lot of money for that.

2:07Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Welcome to Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next. Well, over the weekend, Donald Trump surprised the world by placing a$100 ,000 fee on the cost of an H-1B visa for new employees entering the US. The short-term result was travel chaos. Thousands of skilled employees working in the US on an H-1B who happened to be travelling abroad were told to get back on US soil by midnight Sunday just to make sure they weren't stranded.

2:46Stephanie Flanders:Now, eventually, the White House press secretary cleared up the confusion. The fee would only apply to new applicants. But that still left a big question hanging over the US tech companies who depend on these skilled workers and those visas to keep America at the forefront of global tech innovation. And with India accounting for 70 % of them, it also causes a massive headache for the Indian software companies who are a big part of Indian Prime Minister Modi's growth strategy for the country. So that leads us to a big, quite complicated question about that one policy. Who gains and who loses from President Trump putting a big price tag on skilled foreign talent working in the US?

3:30Stephanie Flanders:Of course, it's not just the H-1B change. A few weeks ago, we saw another example of a business getting caught in the crosshairs of an America-first immigration policy with that ICE raid at a Hyundai plant in Georgia. So do expensive visas and raids like that one actively undermine the Trump administration's effort to attract foreign investment? In the end, could they actually be good news for countries and companies outside the US, including maybe India, who can offer those skilled workers an alternative home? Well, we have a lot of strands to unpick here, and I'm delighted that we can talk about both sides of this policy today with Michael Deng, Geo-economics Technology Analyst at Bloomberg Economics, sitting in Washington today, and Chetna Kumar, our Geo-economics Analyst for South Asia, who's joining us from New Delhi.

4:17Stephanie Flanders:And I should say, I'm sitting in New York and it's Tuesday morning U.S. time.

4:27Stephanie Flanders:I think it's probably useful to start with some context on how important this visa has become for the U.S. and indeed its relevance to India. So, Michael, just sort of talk us through the kind of companies that have relied on this visa and how important they are to America's tech industry. I think primarily most of the companies that have been using H-1Bs, I would say probably two-thirds, are the software and IT sectors. So you have the IT contracting and service companies, Tata, Infosys, etc. But you also have big tech to a significant degree relying on these H-1Bs to bring in software talent from overseas.

5:03These companies are going to be the ones most directly hit by this H-1B fee change. For IT services specifically, the impact is going to be greater just because it hits their business model directly. Big tech in terms of software may be more capable of absorbing that hit. But outside of these directly computer-related industries, there's also adjacent smaller but also critical industries like semiconductors, for example, which don't necessarily need to bring in a huge bulk of foreign talent. but they do need to bring in a smaller group of highly specialized engineers to support their design, equipment and materials, manufacturing initiatives, etc., which all kind of coincide with this huge reshoring push that's going on in the U.S.

5:44So across the board, you're seeing software and IT computer-related occupations being hit hard first, but then a lot of other more niche industries that need foreign talent to support their own growth into the future also being impacted.

5:59Stephanie Flanders:The broad response that the administration might have, and I've heard even in the last few days, is these are easy ways for U.S. tech companies to bring in cheaper foreign workers rather than pay American skilled workers. And it's undercutting American skilled workers, and that's what they're trying to prevent with this by putting this$100 ,000 wedge in there. I do think that's true to some degree. We've started to see the market for especially junior entry-level computer science software developers get a little soft recently. The stat for recent graduates who are majoring in computer science, the unemployment rate is around 6 % as one of the highest in the U.S.

6:42currently. So I think specifically for that segment and this computer industry that this H-1B policy is targeting, it is true to an extent, and I think this could help that segment specifically. The fear is that this kind of blunt change also pulls in a lot of the other strategic industries that don't rely on this model of labor to support their workforce, in that they need the more highly specialized workforce that the H-1B is supposed to fulfill. And 100 ,000 is quite a big barrier in many cases. They do require specialized talent, but that fee may be too big of a barrier in terms of bringing in foreign talent.

7:15And you could inadvertently harm U.S. tech ambitions in the long run as well.

7:19Stephanie Flanders:I was struck that Reed Hastings, the co-founder of Netflix, and certainly no great supporter of Donald Trump, he's been a sort of prominent backer of the Democrats in recent years. He came out saying he thought this was a good idea, this$100 ,000 fee, for some of the reasons that you just suggested. But we can get into whether there might be exemptions and whether there's a way in which this could be more targeted in a second. But Chetna, I wanted to get to you because my impression from reading some of the coverage was that there was really a lot of concern around this over the weekend. And it's still raising questions about a big chunk of Indian industry.

7:54That's right, Stephanie. The$100 ,000 fee impacts primarily Indian tech workers and Indian tech companies in the US. As we know, 70 % of the H-1B talent comes from India, but traditionally it was Indian tech companies like Tata, Cognizant, Infosys, which have been the greatest beneficiaries of the H-1B program. And their business model relies on being able to hire these Indian tech workers and bringing them to the US to service on-site contracts. So not being able to hire more of our workforce is going to dent their pricing, how they're able to offer services. And we've seen some of that impact show up in Indian stock prices and IT stock prices over the weekend and over this week, particularly because of that.

8:33I think the second concern is broader about U.S.-India relations and what this means for the broader trajectory of the relationship. I think we can't ignore the context within which this is happening. Tariffs on India have been doubled to 50 percent. There have been some other moves by the U.S. administration attacking India, including provoking exemption waivers for India's investments in the Iranian port of Jabbahar and others, which make it seem like President Trump is tightening the squeeze on India quite a bit. There was a notion that perhaps India could withstand the 50 % tariffs on a whole firm because it wasn't really a goods manufacturing, goods exporting countries.

9:08But targeting services is really the engine of India's economy. So for scale, India exports about$200 billion worth of IT services every year, and about$100 billion of that goes to the US. So targeting H-1B workers is sort of seen as a strike on that entire industry.

9:25Stephanie Flanders:You know, when people think of Indian outsourcing, we think of, inevitably, We think of call centers. I know they've developed a lot since the early days of call centers, and there's lots of other services that these companies are providing. But this particular policy, if it's about people coming to the States, why are they affected? You're just talking about the people who are helping coordinate on the ground in the US. So that's about 300 ,000 Indian H-1B workers in the US currently, and that's about a tenth of the total Indian diaspora. That's a tenth of the diaspora in America? In the US, that is right.

10:02These Indian companies have relied, initially because of the cost arbitrage of being able to hire Indian workers and bring them to the US. But there is also some advantages culturally and being able to like efficiencies to being able to bring workers from India to service a lot of the consulting and IT contracts on site. And many of these contracts do require the service provider to be on site. And that's why you see the surge of Indian workers in the US. It's not as much of a rude shock as it seems, because Indian companies have been preparing and have been expecting this change of policy now for a while.

10:35President Trump did try to ban the H-1D program in his first administration. That was not successful. But since then, over the last 10 years, we've seen Indian companies actually scale back their reliance on H-1D visas for workers in the US by about 30 % over the last decade, which is a sizable reduction. And at the same time, we've seen actually US tech companies rely more on the Indian workforce and Indian tech workers like the Meta, Google, Netflix, etc., to sort of bridge their own skills gaps. So we've seen a little bit of a shift happen in the last 10 years of US companies increasing their reliance on H1Bs.

11:09Stephanie Flanders:Okay. Now, Michael, given that a lot of things that come out of the administration, shall we say, don't turn out to be kind of hard and fast, Is there a perception that there could be quite a lot of holes in this? Do you see that as being the first reaction of U.S. companies to just see if they can get an exemption? We've certainly seen a lot of companies looking for exemptions in tariffs, for example. Yes, I think in the absence of clear criteria and timelines, the first instinct for a lot of companies, I would argue with the exception of maybe the IT consulting services companies, because they were specifically targeted in the proclamation.

11:42But any other company like tangentially tech related, STEM related is certainly going to press for an exemption first because that circumvents the entire issue for them. And I think in critical strategic industries like semiconductors, AI infrastructure, that's probably not going to be an issue for them. The key is whether this administration, at least in these critical technology ecosystems, understands the full scope of industries and companies that would need to be exempted. And do they understand all the labor dynamics and the workforce shortages that affect all the supporting industries that aren't just the headline flagship firms?

12:15Certainly, I don't think they're going to miss like an NVIDIA or an OpenAI, for example. But a lot of smaller companies, suppliers, etc., also face workforce issues. And this gets into another issue that's persisted over the past decade in that many of these non-software STEM industries have traditionally had trouble attracting domestic U.S. graduates because they've all gone to software. And so that foreign talent pipeline has been the way that they've kept their workforce sufficient.

12:40Stephanie Flanders:And what kind of job would that be? So specialist engineers in terms of chip design, chip manufacturing, for example. I'm using semiconductors because I'm more familiar with the industry. Why would you not attract American workers into that sector? It seems like that would be just as attractive as some of the other sort of STEM sectors. Mainly because software is so much more attractive in terms of the lifestyle and the salaries. And so there's that gap there that was best filled for a while, in many cases, by foreign researchers and foreign graduates. And I think the stat even for semiconductor-related fields is greater than 50 % or 60 % of researchers all come from outside of the U.S.

13:15And so cutting off that pipeline right now would be pretty harmful for U.S. tech competitiveness in these leading industries that really rely on a smaller pool of specialized labor.

13:25Stephanie Flanders:And just as an obvious question, if there is such scarcity, can't they just pay the$100 ,000? The assumption of the U.S., this administration, has been in quite a lot of areas that the rest of the world is willing to pay up for access to the U.S. in whatever form. I do think for certain industries, they probably are okay with paying it. Unfortunately, those industries also happen to be the flagship firms and industry that are probably most likely going to get an exemption. Like big tech companies are not going to have that much of an issue paying the$100 ,000 barrier if they really need the talent they require.

13:58Stephanie Flanders:But they could just go and have dinner with Donald Trump again and maybe sort it out. Yes, yes. And same thing for the headlining semiconductor firms, for example. But if you dive down more into semiconductor manufacturing, when we're trying to reshore U.S. fabs at a time when there's already a pretty significant cost delta with Asia fabs, adding$100 ,000 barriers to the sort of core engineers you need to ramp up capacity in U.S. fabs is not very beneficial to reshoring. And it's sort of this layer underneath this middle core of engineering talent in the U.S. is going to be most affected by this barrier.

14:31Stephanie Flanders:I love the phrase that the cost delta with Asia fabs, but I guess we should sort of spell out that's just the fact that Asian companies producing chips are cheaper than U.S. ones. Yes, yes. Yes. But we can stick with fabs. I mean, just sort of teasing out the implications of what Michael was saying, it suggests that in these kind of high tech areas where the US has kind of significant ambitions, it seems like either they'll pay the US companies to get this talent or they will get an exemption. And that leaves the IT services sector, which, as you've described, is something that has been very important to some of India's biggest companies in the last few years.

15:13Stephanie Flanders:So does this come down to more of a sort of underhand way to tax those Indian exports of services without saying up front that that's what we're doing? Stephanie, it's hard to say what is motivating this administration, but it does seem like it's one of the ways to tighten the squeeze on India. The 50 % tariffs have not led to India caving on goods or stopping buying Russian oil. It's not led to a big change in India's policy on agricultural market access. So targeting India's IT services, its best performing companies that bring a lot of revenue is possibly one way of President Trump indicating the U.S.

15:52has far more leverage over India than India has over the U.S. But what the impact of this is and whether it will actually be your tax or not, I think it's going to play out over the long term. And I think immediately, though, yes, there will be a margin squeeze for some of these Indian companies. They will have to shift and rethink their business models and pricing strategies. There might actually be some structural advantages for India in here. And President Trump actually might be doing India a good turn by sort of restricting H-1B visas for these kinds of jobs and others. How so? To start with, fewer H-1B visas means there's opportunity for a lot of these investments to go back into jobs in India.

16:31We've seen over the last decade a boom in global capability centers, which is the newer kind of outsourcing that you were speaking to. These are not the BPOs of the 1990s. They're more advanced captive centers that everybody from U.S. banks, like J.P. Morgan and Goldman Sachs to U.S. IT companies and chip design companies have built and used in India. And they provide everything from advanced chip designing, engineering, data analysis, and even product development. So what started as cost arbitrage in India sort of turning into value and innovation in India. And there's an expectation that because H-1B visas are going to become costlier, some of these jobs might find their way back to India and contribute to this like booming GCC economy there.

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20:07Stephanie Flanders:One observation that's been made about China over the years, and particularly in response to the first Trump term and the trade war with China then, was that the initial punishment also inspires a policy reaction within China we've seen, where there's a sort of greater determination to reduce reliance on the US. And now as we've come into the second Trump term, we've seen various ways in which China has kind of long prepared for this moment and has ways of mitigating the effects of the very high tariffs. You know, wouldn't we say the same thing about India? And that's somewhat embedded in what you just said.

20:47Stephanie Flanders:But is there not a slightly different Modi growth strategy that comes out of this that is actually less beholden to the US? Possibly. And I think we're already seeing some of the signals that the prime minister is sending about improving India's self-reliance or people or the government is saying about wanting to support people who are losing H-1B jobs coming back to India. But I do want to say the case with India is a little bit different than China in the sense that India's technology capabilities and India's tech industry is so complementary and deeply linked with the US that trying to unravel this relationship actually hurts both for a considerable period of time.