Birth Tourism: An Economic Win for the U.S., Today and Tomorrow

birth tourism
By Kathleen Brush

NEW YORK -- The boom in so-called "birth tourism" is pouring plenty of fuel on the country's already-fiery immigration reform debate. Birth tourists, primarily Chinese women, travel to and give birth in the U.S. so that their children will be U.S. citizens. After acquiring citizenship for their newborns, the families return to their home countries to raise their "anchor babies." The plan is to send these children back to the U.S. when they are old enough to go to college, after which, if they chose, they'll be able to stick around and make their livings as Americans.

The backlash against this practice has become so intense that members of Congress are now calling for a change in how we interpret the 14th Amendment, overturning a century and a half of precedent that grants citizenship to anyone born on U.S. soil.

Cooler heads need to prevail -- because regardless of whether people are "gaming the system," the result is actually a win for the U.S. economy, both in the short term and the long term.

The birth tourism industry seems to have arisen partly in response to changes in U.S. policy that reduced the number of H-1B visas. These allow non-Americans in specialty occupations to work in the U.S. According to Manpower , the country now faces a severe shortage in occupations in engineering and technology. These Chinese "anchor babies" may offer a partial solution.

The birth tourism industry is tiny. In 2000, the Centers for Disease Control and Prevention reported that 5,009 anchor babies were born. In 2008, the latest year for which data is available, the number was 7,462. This amounts to about 0.2% of births in the U.S.

In 2003, the number of H-1B work visas was reduced from 195,000 per year to 85,000, including 20,000 that are reserved for foreign graduates with master's degrees or doctorates.

In the 2011-2012 school year, there were about 197,000 foreign graduate students in the U.S. Of those, 37% were from China and most were seeking engineering, technology and other science-related degrees. Many of these graduates would prefer to stay in the U.S. after graduation -- and U.S. employers need their innovation-essential skills to fill jobs -- but just 20,000 can be granted work visas.

Importing Economic Energy

A shortage of workers in America with the skills to innovate is not something to view lightly. A quarter of a century ago, the consensus was that the U.S. would lose its status as the world's largest economy by 2007, falling to third place behind Japan and Germany. Japan would be a $4.5 trillion economy, Germany $4 trillion and the U.S. $3.5 trillion.

%VIRTUAL-pullquote- Having more hard-working Americans with needed skills at a time of declining American competitiveness seems like something liberal and conservatives could agree to embrace.%The economists were right about the size Germany and Japan would achieve, but they missed the U.S. figure by $10 trillion. Later analysis indicated that those pessimists had failed to account for America's innovation machine, which draws quite a bit of its power from immigrants. Since 2000, 20 percent of American Nobel Prize winners in science, technology, engineering and math (the "STEM" fields) were immigrants.

Which of America's immigrants are the most innovative? Naturally, it's the STEM graduates. According to the Department of Education, Asian-Americans have the highest ratio of science and engineering graduates to population. It's nearly 3-to-1. Next closest are non-Hispanic white Americans, which have a ratio slightly higher than 1-to-1.

Asian-Americans also punch well above their weight class in higher education generally. The bachelor's-degree-to-population ratio is nearly 2-to-1 among Asian-Americans, and for doctorates, it's nearly 3-to-1.

Education statistics skew toward not just U.S. immigrants, but Asians in general. Looking at the 2009 rankings from the Program for International Student Assessment, the top five educational systems for math scores were: Shanghai-China, Singapore, Hong Kong-China, South Korea and Finland. The U.S. ranked 27th. The top five countries in science were: Shanghai-China, Finland, Hong Kong-China, Singapore and Japan. The U.S. ranked 24th. (The report treats China's "special administrative regions" as distinct from the rest of the country.)

The U.S. also needs more immigrants to support economic growth. The U.S. in 2012 reported its fertility rate was below the replacement rate. The last thing the debt-soaked U.S. needs is a smaller working population as its population of retirees who depend on Social Security and Medicare is growing.

Economic Stimulus Right Now

The rise of Chinese anchor babies appears to also have a more direct benefit to the U.S. economy. According to the Institute for International Education, foreign students contributed nearly $22 billion to the U.S. economy in the 2011-2012 school year and are paying into the health care system.

Further, a report by NBC estimated that the parents of anchor babies are in the country only three to four months but spend about $30,000 here on heath care, accommodations and travel.

It's not just school funding shortages, potential population shortages and STEM graduate shortages that these children are helping to alleviate. Asian-Americans also have the highest average earning capacity of any hyphenated-American group. According to the Pew Center, the average income for an Asian-American household in 2010 was $66,000 vs. $49,800 for the U.S. population. Much of that difference can be attributed to being STEM graduates.

In the U.S., the average STEM major earns $500,000 more (in discounted lifetime earnings) than the average non-STEM major. That probably means they are also disproportionately contributing to our tax revenues -- paying down the U.S. deficit, not contributing to it. Asian-Americans are proportionally under-represented as welfare recipients and, according to the Bureau of Labor, they have the lowest unemployment rate of any hyphenated-American group.

Chinese anchor babies who later return to the U.S. to live offer one big benefit to the country. Chinese parents will raise these children in China before sending them there for an advanced education. Once they have completed their educations, these Chinese-Americans will be great resources for American companies that want to access the abundant opportunities in the 21st century's largest market opportunity. They are bound to also be great ambassadors to promote American-style freedoms back in China.

Having more hard-working Americans with needed skills at a time of declining American competitiveness seems like something liberal and conservatives could agree to embrace.

The framers of the 14th Amendment, ratified in 1868, may not have been able to foresee the rise of anchor babies. They did, however, probably recognize that people who see in America the chance for a better life for their children will always be vital to keeping America on the forefront of innovation.

Since then, innovation has played a large role in making the U.S. economy the world's largest and keeping us in that spot, even though our population is currently one-fourth the size of rapidly surging China's. America could ultimately lose its "largest economy" title simply by being overwhelmed by the raw power of population, but it would be a real pity if it lost its status as the world's greatest innovator due to factors under our own control.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

More from

10 Ways We're Losing Superpower Status to China
See Gallery
Birth Tourism: An Economic Win for the U.S., Today and Tomorrow

It's taken 160 years, but in 2011 China reclaimed its dominance as the worldwide leader in manufacturing output. Responsible for 19.9% of world output compared to the United States' 19.4%, China has retaken the title the U.S. had held for the past 110 years.

China's success relies on two comparative advantages that the U.S. simply doesn't have.

First, China has a gigantic labor force. With approximately 89 million more people involved in industrial production in China than in the U.S., more bodies are capable of producing more goods. Although U.S. workers are far more productive than their Chinese counterparts, it's a sheer numbers game that China will win every time.

Secondly, Chinese labor is considerably cheaper than U.S. labor. In the United States, the government has set the federal minimum wage at $7.25. Chinese minimum wage laws differ across its 31 different provinces and can run as low as 600 yuan per month to as high as 1,450 yuan per month -- in U.S. dollar terms, that's roughly $94 to $227 each month.

Having debt is never a good thing, but it's been a particularly touchy subject over in Europe.

Greece, Ireland, Portugal, and now Spain have all succumbed to unsustainable debt levels, and that has left many American citizens wondering if we're headed down a similar path.

When the U.S. government chose to raise the debt ceiling last August for the 78th time since 1960, U.S. debt stood at $14.3 trillion. Of that total, nearly $10 trillion is held by individuals and corporations, as well as by state, local, and foreign governments. According to U.S. government statistics through mid-2011, China is the largest public debt holder, with $1.13 trillion -- slightly higher than the $1.11 trillion U.S. citizens and corporations own in U.S. debt.

China ranks behind only the Social Security Trust and the Federal Reserve (which only owns U.S. bonds as part of its two quantitative easing measures) in terms of total U.S. debt holdings. As the U.S. continues to drive further into debt, China stands ready to keep collecting the interest.

The U.S. may still have the world's largest economy by Gross Domestic Product, but as of 2010 it no longer consumes as many barrels of oil equivalent each year as China does.

The rapid industrialization of China is one of the primary reasons oil prices have risen so dramatically over the past decade. Whereas 71% of U.S. GDP is tied to personal consumption, China's growth stems from its manufacturing sector and its continuing infrastructure build-out -- both very energy-intensive segments. Although China still derives much of its energy production from coal, its reliance on oil is increasing. Saudi Arabia, the world's biggest crude exporter, now ships more to China than to the U.S. and looks first to China rather than the U.S. to decide whether or not to increase production.

China's foreign practices also give it an edge. While U.S. companies are constrained in their expansion efforts by politics, China has stated its willingness to build refineries in Iran. In further expansionary efforts, China-based oil company CNOOC (CEO) attempted to infiltrate the U.S. market by bidding on Unocal in 2005, but the move was blocked and Chevron (CVX) eventually outbid the government-owned oil giant.

It appears the power that China can exert on the oil market is only growing.

The United States is the largest economy based on GDP right now, but it probably won't be for too much longer considering China's decades of outperformance.

GOP Chart
Source: World Bank.

Since 1980, China's GDP has grown by an average of 10.02% annually. Based on its projected growth rate of 7.5% as predicted by Premier Wen Jiabao in March, China is on pace to surpass U.S. GDP growth, which has averaged just 2.67% since over the same period, by 2019. Even if China's GDP growth slowed to just 5% -- which would be very rare from a historical perspective -- it would surpass U.S. total GDP by 2021. That type of consistent outperformance simply can't be ignored.

As you can imagine, with so much emphasis placed on the manufacturing sector, the demand for precious metals including copper, gold, and silver is rising dramatically. These precious metals are used in everything from construction to electronics manufacturing, their applications are widespread and China's demand for them is absolutely insatiable.

China overtook the U.S. in copper consumption in 2002 and now uses more than four times as much annually. Copper producers like Freeport-McMoRan Copper & Gold (FCX), which counts China as its largest customer, rely heavily on Chinese demand to buoy copper prices, the lifeline to its profitability.

Gold is also rapidly becoming an investable source of wealth in China, with high inflation rates threatening to devalue workers' earnings. Between 1950 and 2003 the Chinese government barred citizens from owning gold bullion, so it wasn't until recently that Chinese citizens were able to invest in the shiny yellow metal. It took just eight years for China to surpass India in gold investment demand since that ban was lifted, according to The Wall Street Journal.

PetroChina (PTR) in the oil and gas industry and China Unicom (CHU) in telecommunications ranked as No. 5 and No. 8, respectively, in terms of the world's largest companies as of the second week in July.

That may not sound all that impressive, but consider that two additional Chinese companies -- Industrial and Commercial Bank of China and China Construction Bank -- are sitting just outside the top 10, and you'll realize that China's dominance as an economic power is beginning to be reflected in the underlying large corporations that call China home.

This is important as it signals another possible shift away from the United States' dominance among the world's largest companies. With seven of 10 spots, the U.S. isn't going to give up that title just yet, but China's growing domestic infrastructure build-out as well as its international expansion will only give PetroChina and China Unicom a high-growth advantage over the United States' largest companies, which are growing at a more tepid pace.

In spite of its reliance on "dirty fuel" coal to produce the lion's share of its energy, China has become the world's leading investor in renewable energy initiatives -- at least according to Chinese environmental officials.

In 2010 China invested the equivalent of $154 billion in green initiatives and plans to pour the equivalent of $473 billion into green energies between 2011 and 2015. Through various programs including the "Top 1000 Enterprises Program," which focuses on reducing energy use at the nation's largest enterprises, and "10 Key Projects," which offered incentives to build hydroelectric and renewable fuel sources, China is spearheading investment in renewable fuels and slowly weaning off its dependence on coal.

Europe and the U.S. may not possess the demand required to prop up clean energy companies, but Chinese demand might be the driving force that takes green technology companies to the next level.

Chalk up another U.S. defeat as China became the largest manufacturer of smartphones in the first quarter of 2012. Year-over-year unit growth rocketed higher by 45% with China shipping 146 million units in the first quarter. That compares to unit volume growth of just 5% in the United States in the same period.

One of the primary reasons China now commands 22% of the U.S. smartphone manufacturing market while the U.S. sits at just 16% is due to Apple (AAPL) choosing to manufacture the iPhone 4S in China. Apple, which sold 35 million iPhones last quarter, is seeing its market share quickly creep up on region-leading Samsung. Although Apple has added to China's smartphone dominance, approximately two-thirds of all global shipments from China run on Google's (GOOG) Android operating system.

As you might imagine, with more than 1.3 billion mouths to feed, China's combination of rapid economic expansion, high food cost inflation, and population growth have firmly placed it above the U.S. in total consumer spending on groceries.

According to research firm IGD, in 2011 Chinese consumers spent the equivalent of $964 billion on groceries versus just $908 billion in the U.S. By 2015, these figures are forecast to grow to $1 trillion in the U.S. and $1.6 trillion in China. With much of China still rural and agrarian, food imports into the country have been relatively small.

But how long can China remain self-sufficient in food production? Not nearly as long as you might think. As China's industrialization continues and people leave farming jobs to join the higher-paid skilled working class in major cities, the demand for imported food staples like corn and rice could rise dramatically. If you think food inflation is a problem now, give China a few more years to expand its population and infrastructure.

Finally, China's importance as a trade partner is too obvious to ignore.

From an export perspective, 30 U.S. states count China among their top three export markets while 48 states have more than doubled their export growth to China since 2000. With exports now totaling more than $100 billion, Chinese consumers are quickly becoming a priority for U.S.-based companies.

This street runs in the opposite direction as well. The sovereign debt crisis in the European Union caused consumer buying to dry up in 2011. Thankfully, a trade surplus from the U.S. more than made up for the EU's lack of demand. In fact, China's trade surplus with the U.S. is the sole reason it had a positive trade surplus of $155 billion through November of last year. Since 2008, China's reliance on the United States to contribute to its trade surplus has risen from 90.1% to 175.6% through November 2011.

Chalk up another win-win scenario for China.


Read Full Story
  • DJI26904.81-752.61-2.72%
  • NIKKEI 22523360.3040.900.18%
    Hang Seng23950.69-504.72-2.06%
  • USD (PER EUR)1.18-0.0082-0.69%
    USD (PER CHF)1.09-0.0053-0.48%
    JPY (PER USD)104.790.25700.25%
    GBP (PER USD)1.28-0.0130-1.01%

From Our Partners