Why We’re All Arguing About H-1Bs Again

And more from this week…

It was a good week for economic data, as GDP figures for Q2 (the three months after Liberation Day) were revised substantially upward and initial jobless claims fell well below estimates. Economists remain confused that tariffs might work, rather than destroy the economy, and that job growth will be low when a recent flood of illegal immigrants is receding. Moody’s economist Mark Zandi warns that “the US has entered a jobs recession,” while J.P. Morgan reports “an odd decouple as capex surges and job growth stalls,” observing that “this juxtaposition is unusual and does not align with the expected trade war drags.” The lesson as always: read Understanding America, be less confused.

What is happening with H-1Bs? Daniel dives in:

It’s H-1Bs, round two. After December’s kerfuffle brought sleepovers under attack for perhaps the first time ever and flung Vivek Ramaswamy hundreds of miles outside the Beltway, the broad consensus among conservatives was that employers frequently abuse the visa program and that it desperately needs reform. (Oren wrote about this at the time.) Many expected that the Trump administration would address the problem, especially after presenting a promising proposal at the end of the first Trump administration that the Biden administration subsequently blocked. The new reforms are out, but they don’t solve the problem.

What is the problem? The H-1B visa is supposed to let employers temporarily hire foreign workers in “specialty occupations” when skills are in “short supply.” In practice, that’s not how the program works. Employers don’t actually have to demonstrate that no American worker is available to fill the job, and they are not obligated to pay a market wage. The visas are issued by lottery, without regard to where the most valuable skills are most needed, and they are attached to the specific employer, giving the workers no option but to leave the country if they want to leave the specific job. Congress has capped the issuance of new H-1B visas at 85,000 per year, but with most renewed year after year once issued, estimates suggest that approximately 700,000 individuals are working in the United States on the visa today. The typical H-1B visa holder is not “top talent:” he is an entry-level engineer working at a Big Tech company or an outsourcing firm.

The Trump administration has taken two steps toward reform. First, employers will have to pay a $100,000 fee for each H-1B visa granted. Despite initial claims from Commerce Secretary Lutnick that the government would apply the fee to each visa on an annual basis, the White House later clarified that the fee will be affixed once to new visas, and does not apply to existing H-1Bs or in-country renewals. With visas running up to six years, this means the annual fee is roughly $15,000, and the incentive will be to use the “temporary” visa on workers who will stay as long as possible.

As policy, this is a blunt tool, but a useful filter: If a job is truly essential and employers cannot fill the position with American workers, an employer should be willing to pay the fee. Marginal, cost-cutting uses will be uneconomical, while the escape value will remain available for real needs. Hiring and training an American worker will be a better choice whenever it can be done for less than six figures.

Second, the Department of Homeland Security has published a proposed rule to retain the H-1B lottery system but weight it according to the Department of Labor’s “wage level.” Here, the administration fell short. Although this is a small step toward merit, it uses the wrong yardstick. “Wage levels” refer to relative levels within an occupation, not absolute wages or skills. A “senior” acupuncturist earning $42,000 can be at a higher “wage level” than an AI engineer earning $280,000. As Jeremy Neufeld of the Institute for Progress has noted and demonstrated, the rule, as currently drafted, does not actually incentivize the allocation of visas to real talent, and could instead have the unintended consequence of further rewarding outsourcing companies, whose workers tend to be at high “wage levels” even if not especially well paid.

The Trump administration should go back to the drawing board; fortunately, there’s still time to improve the plan. The notice and comment period for the proposed rule is open until the end of October, and they will hopefully be receptive to good-faith feedback from those who want the program to work better for American workers. Any reform to the H-1B visa program should scrap the lottery in favor of an auction system that allocates visas to whatever jobs are being offered at the highest salaries—the best available measure of high-value skills and unmet demand (this was the approach contemplated in the first Trump administration). Employers must make an actual effort to fill any position with American workers first. And visas should be portable, so that employers cannot lock foreign workers into a modern-day form of indentured servitude. — Daniel

IN OTHER IMMIGRATION NEWS

At Tablet, Mike Lind explains why “Infinity Is the Wrong Number of Immigrants.” The problem is that:

Asked how many immigrants America needs, each of these selfish interest groups and industries naturally answers, “More!” If the annual number of legal immigrants were doubled tomorrow, the same institutions and interests would be wailing about shortages and demanding further increases. So it is no exaggeration to say that the ideal number of immigrants for many, if not the most, powerful institutions in American society is infinity.

He then debunks each of the evergreen arguments for more immigration as always the right answer (“Necessary for Economic Growth,” “Increases Innovation and Productivity,” “Fills Unfilled Jobs that Americans Won’t Do,” “Promotes the Long-Term Solvency of Social Security and Medicare,” and “Needed to Avert U.S. Population Decline”).

Meanwhile, in the New York Times, Josh Barro explains that “Democrats Blew It on Immigration.” Of note, he acknowledges that a “comprehensive immigration reform” premised on allowing those already in the country to remain permanently ain’t gonna fly when your party has just created an enormous pool of new arrivals by presiding over an unprecedented influx of illegal immigrants. Can the Left come to terms with deportation? We are not holding our breath.

Labor, by contrast, seems rather more interested in being serious. Teamsters president Sean O’Brien supports a new bill from Senator Bernie Moreno that would impose huge fines and personal criminal liability on executives at companies using illegal labor.

WHAT ELSE WE’RE READING

• New Fed Appointee Stephen Miran’s Remarks at the Economic Club of New York

• Trump’s Youth Support Has Faded. These 11 Young Trump Voters Explain Why. (NYT)

• Why Marriage Is Increasingly for the Affluent (WSJ)

• In charts: Can Germany afford its €1.35tn welfare state? (FT)

• A State Department for the Golden Age (The American Mind)

INDUSTRIAL POLICY: EQUITY AND BANKRUPTCY

Interesting developments continue in both public and private equity developments: “Trump Invokes ‘Golden Share’ to Block U.S. Steel Plans for Illinois Plant” (WSJ) while “Intel Is Seeking an Investment From Apple as Part of Its Comeback Bid” (Bloomberg).

On the sell side, Warren Buffet’s Berkshire Hathaway has fully exited its investment in BYD, which netted a nearly 4,000% return on an initial $230 million investment back in 2009 (CNBC).

And the Trump administration “is seeking an equity stake of as much as 10% in Lithium Americas as it renegotiates terms of the company’s $2.26 billion Energy Department loan for its Thacker Pass lithium project with General Motors” (Reuters).

In Bankruptcy Court, our continuing series on the Old Right’s failed ideology, Richard Hanania cites a venture capitalist’s comment about the sophistication of a Chinese battery manufacturing plant, that “when you see that, you also just realize that catching up to that is futile; it’s not going to happen.” His conclusion? “This is why industrial policy is so stupid. Someone’s better at doing something, they’re going to be better. Buy it from them.”

Many were perplexed by his claim that highly successful industrial policy proves that industrial policy is stupid, leading some to ask how he thinks China got better at making batteries. His answer: “a big middle income population with traits conducive to being good at manufacturing.”

This echoes almost precisely the effort by Bronze Age Pervert to say something useful about economics, in which Mr. Pervert also sought to explain China’s industrial dominance while maintaining blind faith in market competition rather than government intervention as the source, and squared the circle with racial determinism. As Oren characterized that effort, “Can we interest you in Paul Ryan but with more attention-grabbing racial tropes?”

BLOWING THE AI BUBBLE

More from J.P. Morgan via AEI’s Jim Pethokoukis: Since ChatGPT’s launch in November 2022, “AI-related stocks” account for 75% of S&P 500 returns, 80% of earnings growth, 90% of capex growth. Put another way, remember when you check your index funds in your retirement account, you’re not as rich as the balance says you are.

For instance, here’s a problem: “America’s Top Companies Keep Talking About AI — But Can’t Explain the Upsides” (FT):

The biggest US-listed companies keep talking about artificial intelligence. But other than the “fear of missing out”, few appear to be able to describe how the technology is changing their businesses for the better. That is the conclusion of a Financial Times analysis of hundreds of corporate filings and executive transcripts at S&P 500 companies last year, providing one of the most comprehensive insights yet into how the AI wave is rippling through American industry.

When AI is deployed, its effects are far different from the epoch-defining predictions. At Works in Progress, Deena Mousa provides a great case study of radiologists:

In 2016, Geoffrey Hinton – computer scientist and Turing Award winner – declared that ‘people should stop training radiologists now’. If the most extreme predictions about the effect of AI on employment and wages were true, then radiology should be the canary in the coal mine.

But demand for human labor is higher than ever. In 2025, American diagnostic radiology residency programs offered a record 1,208 positions across all radiology specialties, a four percent increase from 2024, and the field’s vacancy rates are at all-time highs. In 2025, radiology was the second-highest-paid medical specialty in the country, with an average income of $520,000, over 48 percent higher than the average salary in 2015.

Mousa dives into all the reasons for this result and extrapolates some lessons for the deployment of AI generally. For an even broader discussion of how technology diffuses through an economy and the ways it can either serve or harm workers, read Oren’s new essay, “Two Cheers for Automation.” His conclusion:

The Luddites, it turns out, were not protesting technology. To the contrary, the machines at issue had been in use for years, and in many cases the protestors were the most adept users. Their demands were fair wages and better working conditions, not an end to automation. They smashed machines because that was the only form of power they had. Whether workers benefit from technology, and whether our politics supports our deployment, is not a question about the technology. It is a question for all of us.

The essay is part of a major new project just published by American Compass, For Whom the Machine Toils, which Daniel edited. It features a range of essays, survey data, a roundtable discussion on AI, and an interview with Teamsters president Sean O’Brien, all approaching from different angles the tensions and complementarities between innovation and automation on one hand and worker power and gains on the other. Daniel’s essay is a fascinating look at how regulatory arbitrage between the American North and South previewed subsequent offshoring under globalization.

TARIFF CORNER

Bloomberg published an article highlighting how the Trump administration’s tariffs on China have not hindered China’s export of manufactured goods, but have instead redirected them to the markets of other trading partners:

President Xi Jinping’s export engine has proved unstoppable during five months of sky-high US tariffs, sending China toward a record $1.2 trillion trade surplus.

With access to the US curtailed, Chinese manufacturers have shown they aren’t backing down: Indian purchases hit an all-time high in August, shipments to Africa are on track for an annual record and sales to Southeast Asia have exceeded their pandemic-era peak. That across-the-board surge is causing alarm abroad, as governments weigh the potential damage to their domestic industries against the risk of antagonizing Beijing — the top trading partner for over half the planet.

As Daniel notes, the Trump administration’s China tariffs can have a comparable effect to busing illegal migrants from Texas and Florida to blue states up north during the Biden administration: It makes the United States’ problem with Chinese overcapacity the world’s problem. Countries that decide to passively absorb China’s overcapacity do so at their peril.

Absorbing China’s glut of manufactures is indeed perilous for countries that want to climb up the development ladder, as a column in the Financial Times on “How South-East Asia Lost Its Way” makes clear:

The big shock is China’s impact on the region. As global manufacturers began to move some production out of China, spooked by geopolitical tensions with the west, a more intrusive state and rising costs, south-east Asia looked poised to gain the most. Many countries in the region already had a strong manufacturing base to build on. But that shift in investment didn’t materialise in a significant way. Instead, China began exporting its surplus production—to south-east Asia more than to any other region—making it hard for these nations to maintain share even in their home markets. China has over the past 12 months seen a big decline in its trade surplus with the US. It has been matched almost dollar for dollar by an increase with south-east Asia.

Optimally, our trading partners would join the United States in raising their own tariffs on China, which could serve as the basis for a U.S.-led trading bloc, which Oren has called for. And some of our trading partners are continuing to move in that direction, at least in some product categories: “Trump’s Steel Tariffs Are Triggering Counterstrikes From US Neighbors Against China” (Bloomberg).

President Trump announced a flurry of new tariffs this week: on heavy trucks (which is a win for the United Auto Workers), pharmaceuticals, and cabinetry and related products, while also initiating new Section 232 investigations for industrial machinery and medical devices, and teasing a novel scheme on how to incentivize companies to reduce their dependence on foreign-made semiconductors. Peter Harell has a good breakdown of the trade actions.

And, finally, some headlines on how tariffs are shifting investment decisions:

• Volvo to Build New Hybrid Car to Meet U.S. Demand and Avoid Tariffs (NYT): Says Volvo CEO Hakan Samuelson: “The tariffs have accelerated this process, it would be fair to admit that.”

• Eli Lilly to Build $6.5 Billion Texas Manufacturing Facility for Obesity Pill, Other Drugs (CNBC): “Drugmakers have been scrambling to boost their production in the U.S. as President Donald Trump threatens to impose tariffs on pharmaceuticals imported into the U.S. Trump has said those levies will encourage companies to re-shore production after domestic drug manufacturing shrank dramatically over the past decade.”

Enjoy the weekend!