[SCMP Column] Trump's Tourism Slump

January 21, 2018

As the Trump administration ponders how best to launch its trade war with China, maximising impact on China and minimising cost to politically important voters at home, it could do worse than pause to think about tourism.

And he and henchmen like Robert Lighthizer fulminate about merchandise trade deficits, he may do well to remember that set against those visible trade deficits, the US is the world’s largest exporter of services, with surpluses almost anywhere you look worldwide. And 40 per cent of those services exports are tourist spending by foreigners in the US.

While France is the world’s leading destination for foreign tourists – attracting nearly 83m people in 2016 – it attracts tourism spending of a modest US$42bn. This pales against the US, whose 75.6m inbound tourists spent US$290bn, making the US by far the world’s biggest earner from international tourism.

Out of those 76m foreign visitors to the US in 2016, fully half came from Canada and Mexico. China accounted for just 3m. But then look at the spending: those Chinese tourists spent US$33bn – almost as much as Canadians and Mexicans combined.
Already, the US tourism industry has suffered what some are calling the “Trump Slump”. From his early efforts to block travel to the US from a number of Middle Eastern economies that he deemed were sources of terrorism, to his attacks on Hispanics (remember his tweet against Mexicans on the campaign trail: “They’re bringing drugs. They’re bringing crime. They’re rapists.”), his decision to engage trade war with Canada and Mexico, his biggest trade partners, and his recent slur on “shithole countries”, it is hardly surprising that the flow of international tourists into the US is faltering, and may falter further.

Data just released by the UN World Tourism Organisation show international travellers growing by more than 7 per cent in 2017, with Europe seeing strongest arrivals growth, up 8 per cent. Arrivals in South America rose by 7 per cent, while arrivals in Asian destinations jumped 6 per cent. But the US? They reported a decline estimated at 2 per cent – with a 10 per cent decline from Europe and 7 per cent from Mexico. As a result, Spain has now jumped ahead of the US as the world’s second most popular tourist destination.

With an estimated 8.6m jobs in the US directly reliant on tourism (according to the US Travel Association), and a further 15.3 per cent benefiting indirectly, such contraction is no small matter.

And as Trump ponders his assault on China, he should think on a few facts: according to the German-based China Outbound Research Institute, China was last year the source of 154m international travellers. Admittedly 68m of these went either to Hong Kong or Taiwan, but that left 86m travelling elsewhere overseas – which outranks Germany (83m), the US (68m) and the UK (60m).

China’s outbound tourism growth is currently running at over 6 per cent a year, with predictions there will be more than 200m Chinese travelling overseas by 2022. This is unlikely to slow any time soon. Chinese took more than 4.4bn domestic holidays in 2016 (compared with Americans who took 2.2bn local holidays), and a rising number of these local Chinese travellers are on the cusp of becoming wealthy enough to think about international travel (less than 10 per cent of Chinese currently hold passports).

Since China’s international travellers are already by a large margin the world’s biggest-spending travellers, a failure to capture a share of this growth will have sobering impacts on those peple in the US who rely on tourism. In 2016 (the latest year with reliable numbers) Chinese travellers spent US$261bn on their holidays overseas, compared with US$124bn spent by Americans, US$80bn by Germans and US$64bn by travellers from the UK.

So far, Chinese visitors have not been a conspicuous part of the “Trump Slump”, partly because the China visitor numbers are currently quite small. Friendly meetings between Trump and Xi Jinping during 2017, with lots of face given on both sides, have also no doubt insulated the travel numbers from China.

But with China expected to be the source of around 50m new international travellers over the next five years, the price paid if trade war blocks the US tourism industry from capturing a good share of this growth will be considerable. If the 3m Chinese who visited the US in 2016 spent US$33bn, the arithmetic is clear: for every 1m Chinese that choose not to travel to the US, but to travel elsewhere, that implies an $11bn annual loss in tourism revenue to the US economy.

Of course, Trump’s angry trade warriors are measuring their deficit in trade in manufactures when they complain about the trade imbalance with China, not their surplus in services. But that may be a big mistake.

Look at the overall data (again for 2016): of total exports of goods and services combined of $2.2tr, US$1.4tr were goods and US$0.8tr were services. Total imports amounted to US$2.7tr, giving an overall deficit of US$0.5tr.

But break out the services, and the US made a surplus of US$300bn, based on exports of US$800bn and imports of US$500bn. Even more important, where did those services “exports” come from? Around 40 per cent (about US$293bn) came from tourism spending by foreign visitors in the US.

Now these numbers look interesting: in launching a trade war to boost sales of goods like aircraft (US$121bn in 2016), chemicals (US$71bn), semiconductors (US$44bn), soya beans (US$24bn) of meats (US$17bn), Trump is putting in jeapardy US$293bn in existing revenues from tourism. If US tourism were growing like tourism in Europe (8 per cent), then this would mean services export growth amounting to more than US$23bn a year. But the “Trump Slump” means tourism revenues are contracting by around 2 per cent – which means foregone growth in 2017 alone of almost US$30bn.

I sense that we are beyond the point where Trump’s trade warriors will pause to reconsider how well judged their coming trade war may be. But as we watch the tourism numbers stall, we may spare a thought for those millions in the US who rely on tourism, and other un-noticed services exports.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entirely his own.
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