For foreign brands and firms catering to Chinese tourists or luxury shoppers, the potential of Beijing reducing the flow of outbound Chinese tourists or damaging domestic operations as retaliation has proved to be a substantial concern in the past few years. The volatile relationship between U.S. President Donald Trump and Chinese President Xi Jinping has been a cause for concern, but how much does it really matter?
One only has to look at South Korea and Lotte to see how fast financial prospects can take a turn for the worse. The potential for Sino-American relations to negatively affect American business interests dependent on Chinese spending is still quite high. In fact, some have pointed to President Trump’s negative impact on Chinese arrivals to the United States.
THe risk of negative effects on U.S. business interests dependent on Chinese spending is quite high
Perhaps the most significant issue in addressing these concerns is the extreme volatility of the Trump’s administration’s stands on anything and everything. Trump seems wholly willing to make bombastic comments about major diplomatic issues, regardless of political consequences.
Unlike democratic countries, the Chinese government can quickly retaliate against diplomatic slights and perceived threats in a matter of days. Managing the Sino-American relationship requires substantially more tact and caution, things that Donald Trump is not known for.
In the lead up to the 2016 election, candidate Donald Trump’s tone towards China was characteristically bombastic and harsh. He repeatedly stated that he intended to label China a “currency manipulator” upon taking office. Even more troubling for those firms dependent on stable Sino-American relations was the phone call between Taiwan President Tsai Ing-wen and President Trump, which was followed by a major diplomatic dispute between Beijing and Washington.
With the softening of Trump’s tone towards China, Sino-American relations have stabilized substantially. Trump has already reneged on his promise to label China as a currency manipulator. He even went so far as to say he had “developed a friendship” with Xi Jinping after the Chinese president visited the United States.
Why would I call China a currency manipulator when they are working with us on the North Korean problem? We will see what happens!
— Donald J. Trump (@realDonaldTrump) April 16, 2017
In the months afterward, however, relations between China and the United States took another turn for the worse. The Trump administration directed Robert Lighthizer, the US Trade Representative, to investigate unfair Chinese trade practices. In a speech in September, Lighthizer said “There is one challenge on the current scene that is substantially more difficult than those faced in the past, and that is China… [China] is a threat to the world trading system that is unprecedented.” The ongoing nuclear crisis on the Korean Peninsula also caused Donald Trump to accuse China of not doing enough to reign in North Korea’s ambitions.
Even with all of this, the personal relationship between Xi and Trump appears healthy, and Chinese state media have been largely positive about Trump’s upcoming trip to China. However, given the volatile nature of all of Trump’s opinions, this may matter very little. The current cordiality in Sino-American relations should not be taken as a sign that relations will remain positive or that major trade or diplomatic disputes will not occur in the next three years that will impact sales of American goods in China and Chinese inbound tourism to the United States.
Current cordiality should not be taken as a sign of calm times ahead
Trump’s already had a negative impact on Chinese tourism to the United States, both by hurting the reputation of the United States abroad or more directly through his controversial travel ban. It is the fundamental economic and political competition between the United States and China that will likely be the cause of any truly economically damaging diplomatic row. Trump’s relationship with Xi Jinping may matter little in this regard.
Many American politicians have maintained a hostile attitude towards China, including members of Trump’s party. In a speech at the University of Sydney in May, Senator John McCain of Arizona stated that China had become a “bully” in its quest to assert its regional claims and global ambitions, most significantly in the South China Sea. Trump may be willing to bury the hatchet on these major geopolitical issues, but the members of both American parties and U.S. allies are not likely to forget.
Positive relations between Xi and Trump also mask the ongoing conflicts between U.S. and China over fundamental economic principles. The willingness of members of Trump’s administration to criticize Chinese trade policies that protect multi-billion-dollar domestic firms from foreign competition has not waned, as evidenced by Lighthizer’s comments mentioned earlier.
Despite a “Good Relationship,” Chinese policies remain under fire
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.
The Chinese government continues to block major investments in Chinese companies
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.