Universities Aren’t Ready for Trade War Casualties

The sudden turn for the worse in trade talks between the United States and China has left markets shaken and governments on edge. As relations between the two largest economies sour, the future has taken on a darker cast.

Some affected U.S. industries have protested the spiraling tariffs. Others have been promised protection and subsidies by the Trump administration. Yet one U.S. industry is far more exposed than any other—and far less likely to receive compensation from the White House. The trade war leaves U.S. higher education far more endangered than its leaders realize.

Higher education plays many roles in the United States, including research, workforce development, and cultivating students’ ability to engage as citizens. Viewed from an international economics perspective, however, it’s also a major exporter of services—over $45 billion annually, according to the U.S. Department of Commerce. Almost 1.1 million international students studied in the United States during the 2017 to 2018 school year, the largest such population in the world.

And American schools’ best market? Chinese students, who started trickling into U.S. schools in the 1980s and flooding in during the 2000s. With more than 360,000 Chinese students enrolled in U.S. institutions, Chinese visitors account for one-third of the foreign undergraduates and graduate students studying in the United States. To put that into scale: That number is about the same as the amount of students from Maryland, the 19th-ranked state by size of its educational enrollment. Although most of those students end up in large research universities (think New York University or Purdue University), substantial numbers also enroll in bachelor’s or master’s institutions like Mount Holyoke College and the University of Bridgeport.

The demand for U.S. degrees comes from several sources. Students might want to escape rote learning at home or experience another country’s society. And the education they can receive in the United States might also just be superior—and certainly more prestigious—than what’s offered at home: U.S. colleges continue to dominate global higher education rankings.

On the U.S. side, university administrators really do feel an idealistic duty to share knowledge with the world. But more pragmatic imperatives are the biggest driver. Many Ph.D. programs depend on having access to a global talent pool to sustain America’s vaunted research productivity. And many universities simply depend on international students’ tuition dollars.

The pricing model of U.S. colleges can strike outsiders (and even most of us who work at a university) as bizarre. U.S. schools almost universally post tuition rates so high that nobody but the richest domestic students are expected to actually pay the sticker price. International students, however, are much more likely to be charged higher tuition or even full freight.

Attracting more international students can therefore be a sweetener for even well-heeled colleges like Smith College or the University of Southern California. For less well-endowed institutions—like regional public universities or private schools with a solid local reputation—international tuition dollars can make the difference between staying open or closing.

To be sure, this has not always been a rosy relationship. U.S. universities can have surprisingly provincial attitudes that provoke cultural frictions, as when a Duke University professor warned Chinese students that they should only speak English earlier this year. Schools have not always done everything they could to provide services to help foreign students succeed. Others even seek out weaker students, including those whose language skills aren’t up to the task of studying in a foreign tongue, in order to dun them for English courses and remedial classes. Perhaps that’s one reason why an American university degree can actually turn off Chinese employers.

As a business strategy for schools, this has been remarkably successful over the past several decades. The governments of countries such as Saudi Arabia and the rising wealth of China and India have supported U.S. higher education just as Washington and state capitals have turned away from funding education directly.

Yet it’s also left U.S. higher education far more exposed to international politics and economics than it’s ever been in history. Much of America’s higher education system couldn’t survive without that money. That’s why there’s a quiet panic in university presidents’ offices every time a new data point comes out suggesting that the Trump administration’s policies (and President Donald Trump’s own rhetoric) may have marginally discouraged international applicants.

Still, despite being sensitive to small fluctuations in visa policies and international application figures, university presidents and others don’t seem to be paying enough attention to the real tail risk: that the Trump administration’s trade war with China could pose a severe, and for some institutions even existential, threat.

Until last week, many observers took for granted that the trade war would be resolved. But now there’s a widening array of industries to be targeted. And as negotiators on both sides seek leverage on each other, it’s likely that higher education will end up in the crosshairs.

That could happen because someone in Beijing brings up higher education as a possible U.S. export industry to target. Party leaders have so far been reluctant to do so, perhaps because they, like many rich or powerful Chinese families, also value U.S. degrees for their children and relatives. But the disputes seem to be breaking past the sorts of firebreaks that have restrained the dispute until now.

There would be a precedent for their action, after all. During a diplomatic spat last year between Canada and Saudi Arabia after Ottawa criticized Saudi human rights policies, for instance, Riyadh pulled seven thousand Saudi college students from Canada and sent them to other English-speaking countries instead. China might take measures to prevent or discourage Chinese students from choosing the United States and instead promote Australia, Canada, Ireland, or the United Kingdom as acceptable options. Similar fears have already manifested in Canadian universities following the chill in Ottawa’s relations with Beijing this year.

But the move could also come from the U.S. side. One of the motivating factors for Washington during the trade dispute, after all, has come out of growing concerns about how Chinese intellectual property practices weaken U.S. economic leadership—and one of the vectors for that has been alleged espionage on campus. Given how U.S. universities work to produce new research, cutting off international students’ access to such schools might appeal to policymakers seeking ways to slow that brain drain.

The United States has already been unilaterally curbing Chinese students’ access. Some want to go further. On Tuesday, congressional Republicans introduced legislation to restrict the ability of researchers affiliated with the Chinese military from receiving student or research visas to the United States.

In the wake of Trump’s executive order effectively banning the Chinese technology company Huawei from the U.S. market, it’s only a small leap from a bill like that one to a more general curb on foreign nationals’ ability to study in undergraduate or graduate science and technology programs identified as having national security implications. Last year, after all, FBI Director Christopher Wray suggested that Chinese students could be a national security risk. A full ban on Chinese students appears to have been only narrowly averted by U.S. Ambassador to China Terry Branstad pointing out it would harm local schools, not just elite liberal institutions.

These possibilities pose a significant and underappreciated risk to U.S. schools. The shock of a cutoff of Chinese students’ tuition could weaken many schools’ financial position significantly. Consider the University of South Florida in Tampa, the 33rd-ranked doctoral institution by international student enrollment. With about a thousand Chinese students presumably paying out-of-state tuition of $17,134, a back-of-the-envelope calculation suggests that losing them and replacing them with students paying in-state tuition of $6,410 would cost the university about $10 million a year, or a 5 percent cut in tuition revenues overnight.

The University of South Florida could probably weather that, although it would probably mean some mix of program cuts and tuition hikes on its remaining students. Other schools have less flexibility and would struggle or simply close. And the implications for particular programs would be even more dire.

Schools should carefully consider how to respond to these threats, even to the point of weighing whether to follow the University of Illinois at Urbana-Champaign’s move in taking out literal insurance policies against these sorts of risks. At a minimum, however, university presidents and all those with an interest in higher education should recognize that their position is far more precarious than it may seem.