It has been a long time coming, and now it finally happened: the United States is imposing tariffs on as much as $60 billion worth of Chinese goods, and China swiftly retaliated with a proposal to impose tariffs on $3 billion worth of U.S. goods. While it still remains unclear where this will eventually take us, it’s safe to say that it represents one step closer to a trade war between China and the United States.
The S&P 500 took a hit as a result, dropping some 2.5%, with the SSE Composite Index having dropped over 3% as of writing this. While stocks are down across the board, some travel stocks have taken a harder beating than others, among them, Air China (-4.97%), China Southern Airlines (-6.99%), and on the U.S. side, Boeing (-5.19%).
While it’s too early to say exactly what will come of the United States’ first move against Chinese mercantilist policies, Jing Travel has discussed the potential ramifications of a trade war at length in its previous reporting, a selection of which is republished below. In short, there’s no reason for panic, but there’s plenty of reason to stay informed.
“There are many good reasons not to fear a trade war between China and the United States would spill over into tourism. For starters, retaliatory action tends to punish the ruling party for highest political impact. In the case of the GOP and Trump’s base, that would mean attempting to stifle exports from red states and swing states won by Trump in the 2016 election. To that end, the EU has proposed to go after product categories that are predominantly exported by such states, as well as states with ties to leading figures in the GOP. The main beneficiaries of Chinese tourism in the United States, however, are predominantly democratic states such as California, Illinois, Massachusetts, and New York. It goes without saying that a tourism ban would only make a very small dent in the economies of most states that were won by Trump.
But it also goes against Chinese business interests. Chinese tourism in the United States isn’t only important to U.S. stakeholders, but also all the Chinese tour agencies, tour companies, airlines, and even payment facilitators that are integral parts of Chinese visits to the United States. Even U.S.-based tour operators that focus on Chinese tourists are often owned by larger organizations in China.”
“Trump’s take on the U.S. trade deficit with China ignores the substantial benefits that both the United States and China derive from bilateral trade. For U.S. consumers, Chinese goods substantially decrease cost of living and contribute to the relatively high standard of living enjoyed in the United States. Moreover, China is already a substantial importer for the United States, which helps drive economic growth and employment opportunities.
Tourism is a factor in this discussion with the estimated $33 billion in Chinese tourism spending in the United States. However, it’s important not to overstate the influence of Chinese tourism in this regard.
A trade war with China would undoubtedly negatively impact Chinese tourism to the United States and China has grown accustomed to utilizing tourism diplomacy to affect the behavior of other states. But Chinese tourism to the United States is also substantially different in nature compared to Chinese tourism to South Korea or Taiwan. Chinese tourists to the United States tend to be wealthier and often travel independently.
Of course, if anger with American trade policy in China is significant enough, it could very well discourage Chinese tourism to the United States, even if Chinese trade or tourism policies won’t.”
The WTO already ruled in 2012 that China must open up its market to foreign payment card companies, but the Chinese government has shown little signs of respecting the ruling even as U.S. companies like American Express, MasterCard, and Visa prepare to enter China. Conversely, China’s UnionPay has achieved virtual full market penetration in the United States. U.S. card companies aren’t alone in expressing their frustration with China’s mercantilist policies.
The American beef and steel industries have been very vocal in the past about perceived unfair protectionism, and the Chinese government continues to block major investments in Chinese companies, including a $1 billion bid by Paramount to invest in China’s Huahua Media.
In short, a positive relationship between Trump and Xi does little to alleviate the growing frustration of major U.S. firms, many of whom are very willing to voice concerns to members of Congress. Trump-Xi relations are good, but that doesn’t mean that retaliatory trade or diplomatic restrictions won’t impact Chinese tourism to the United States or American companies in China.
Of course, the U.S. isn’t as dependent on Chinese tourist dollars as South Korea—a tourism “ban” may have little impact on the American tourist industry as a whole. However, individual firms who depend on Chinese tourism or sales in China need to be prepared. Even if the Chinese government does not issue a formal directive to limit outbound tourism or consumption, past disruptions associated with diplomatic conflicts have influenced Chinese consumers to boycott goods or cancel travel plans.
The fate of Anbang and what it implies about how the Chinese government intends to deal with China’s big, and sometimes failing, international investors make the jobs of U.S. and European regulators even more difficult.
While the risks associated with widespread use of Chinese telecommunications equipment in the United States are quite obvious, the same can’t be said of the tourism and hospitality industry. Does it really matter if a gigantic airport ground and cargo handling company is owned by a Chinese company? What about an international hotel group or a cultural icon like the Waldorf Astoria? Probably not.
However, with Anbang now operated by the Chinese government, that changes things on a fundamental level. It’s no longer a question of companies being run or owned by a Chinese company but about the risk of the Chinese government taking these companies over. If Anbang’s acquisition of Starwood was successful, the Chinese government would today be in control of close to 200,000 employees and 1,200 properties through its forced takeover of Anbang’s operations.
It’s fine to have differing opinions on whether that’s such a bad thing, or even so different from being run by a private (or at least, more private) Chinese company. Even so, with greater scrutiny from regulators and what might turn into a U.S.-China trade conflict looming, it’s safe to say that it will, indeed, be viewed as a bad thing. Combine that with the fact that the Chinese government can essentially take over (or stop financing of) domestic companies at will, and you have a strong case for a less-than-bright future for Chinese hospitality investments in the United States in particular, but even the greater Western hemisphere.
As much as the successful rollout of C919 would be a public relations win for China in its quest to become not only a manufacturing hub, but an engineering powerhouse, it is believed that the Comac C919 will be as much as 10-15 years out-of-date when it launches due to many of the components being sourced from foreign firms. In other words, it shouldn’t serve a big threat to the competing Boeing 737 and Airbus A320 when it launches in 2021. At an average price of $68.4 million, it would also be a more expensive option than what the average competing aircraft costs, even without taking fuel efficiency into account.
But even with a delayed launch, issues with testing, and a questionable value proposition, orders for the Comac C919 have been piling up, with 785 orders from 27 customers placed so far. Out of these 27 customers, GE Capital Aviation Services is the only non-Chinese firm, with the remaining 26 customers either Chinese aircraft leasing firms or Chinese airlines—all encouraged by the government to place orders.
If everything goes according to plan, Comac’s ambitious testing schedule means that we might just start seeing made-in-China aircraft, at least at Chinese airports, as soon as in 2021.