Donald Trump and Start-Ups

Hillary Clinton received 64 million (and counting) votes in the 2016 Presidential election and one of the driving factors behind that was the uncertainty of policies in a Trump presidency. However, as the dust settles and Americans face the inevitable, we need to start to look at exactly what Trump’s America is going to look like. This post discusses the potential changes Trump’s policies have in two major areas of start-up law: trade and immigration. Many worry that the broad, sweeping language of Trump’s campaign does not bode well for Silicon Valley.

 

Potential Trade Impact

A large portion of Trump’s campaign was spent attacking U.S. trade policies — including the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP) — and promising to slap high tariffs on (mainly Chinese) imports. The reneging of trade agreements and the imposition of high tariffs could have potentially devastating effects on Silicon Valley. The tech industry is very reliant upon cheap labor in Asia (including China, Vietnam, and Taiwan) to mass produce all components for smartphones, robots, computers, and tablets. An iPhone 7 is currently costs a minimum of $649 (plus tax) and one can only imagine how a steep tariff or forced manufacturing in the U.S. would affect the price. After all, the consumer will surely bare the cost of Trump’s policies. As CNN Money reports, manufacturing jobs pay an average of $20.17/hour—almost three times the federal minimum wage of $7.25/hour. Another issue with the promise to bring manufacturing jobs back is that those jobs are not great jobs to begin with—with manufacturers earning a little over $53,000 per year, putting them firmly in the lower middle class. Compare this to workers in China who, according to China Labor Watch, earn about $750/month with overtime.

Even though NAFTA, enacted in 1994, actually increased the amount of manufacturing jobs in the United States, Trump is correct about manufacturing being drawn away from the U.S. CNN Money reports that the U.S. has lost 5 million manufacturing jobs since 2000. However, this is a general trend that goes back to the 1960s. At that time, manufacturing jobs made up 24% of the labor market; this decreased to 19% in 1980; to 13% in 2000, and now to just 8% in 2016. However, the problem with Trump’s thesis is that technology has taken on a huge role in the manufacturing sphere — with robotic manufacturing becoming more and more the trend and the jobs associated with those robots requiring more and more education — leaving those who are not educated even less likely to find jobs.

This trend has even taken place in China where we see companies like Foxconn Technology, best known for their mass production of Samsung and Apple parts, replacing as many as 60,000 workers with robots in just one factory alone. As the Washington Post explains, “[This] is the natural dynamic by which market economies become richer as productivity improves. Improvements in agriculture productivity led to a wave of migration of farm workers to cities, where they provided the manpower for an industrial economy that eventually became so productive that we could afford to buy more health care, education, and yes, government.”

In short, Trump’s promises to limit trade are going to be more helpful as campaign rhetoric than actual policies. Manufacturing in other countries gives U.S. consumers and businesses access to low priced goods, which in turn drive the price of those goods down in the U.S. market. These policies have a chance to have a devastating impact on the American economy as a whole, but especially for Silicon Valley technology hardware firms.

 

Immigration and Visas

Another one of Trump’s main issues was immigration; more specifically, the need to limit future immigration and reverse past immigration. Silicon Valley as a whole has pushed hard to expand the use of H-1B visas beyond the 85,000 cap. The H-1B visa is a non-immigrant visa that allows U.S. companies to employ “foreign graduate level workers in specialty occupations that require theoretical or technical expertise in specialized fields such as in IT, finance, accounting, architecture, engineering, mathematics, science, medicine, etc.” To obtain an H-1B visa, an employer must offer a job to the worker and apply for a H-1B petition with the U.S. Citizenship and Immigration Services.

Silicon Valley relies heavily on immigrants — according to Bloomberg News, over 50% of U.S. tech startups valued at $1 million or more have at least one immigrant founder. Additionally, immigrants are heavily involved in the workforce in Santa Clara and San Mateo counties, which are prominent in Silicon Valley. Bloomberg reports that over two-thirds (67.3%) of the workforce in computer and mathematics fields are foreign-born, 60.9% in architecture and engineering, 48.7% in natural sciences, 41.3% in medical and health services, 41.5% in financial services, and 42.7% in other occupations. In short, immigrants make up a substantial portion of all workforce areas in Silicon Valley.

This is in addition to the so-called “startup visas,” which the Obama Administration pushed through without Congress. These visas are given to entrepreneurs who own at least 15% of a U.S. startup, and who can demonstrate the company’s growth potential, have investments from qualified U.S. investors, and provide a “significant public benefit” to the U.S. Visas are granted for two years, but the recipient can apply for an additional three years as the company proves its benefit to the American public. The recent announcement of these startup visas was well received in the tech world.

Trump has flip-flopped back and forth on whether H-1B visas are a way to bring in skilled workers or a way to bring in cheap international labor. According to the Verge, workers on H-1B workers had a median salary of $75,000 as of two years ago. In the Verge, Economist Rob Atkinson argued that the most likely outcome in a Trump White House is that “H-1B visas “will be restricted, limited, and harder-to-get” and that tech companies will “have to go through more hoops to prove there’s not an American that can get the job.” Trump’s tough talk on immigration and handing visas to skilled workers could eventually have the effect of sending jobs outside the country. If the U.S. government prevents Amazon and Microsoft from hiring the best engineers, it is only logical that they might look to set up bases in other countries (such as Canada) where their access to the world’s talent pool would not be limited.

 

Conclusion

Donald Trump’s rhetoric regarding trade and immigration in his campaign have many worried about the impact his policies will have in Silicon Valley. Silicon Valley (and the tech industry as a whole) rely heavily on cheap manufacturing abroad and imported brain power to fuel the tech industry. A fight to keep manufacturing alive in America despite its inevitable death could just wind up costing the U.S. in the form of higher priced goods. And an attack on immigration fueled by the H-1B visa could “brain drain” the U.S. and drive some of the most innovative minds (and their companies) away from the U.S.