Maybe it was bound to happen, maybe it wasn’t—but things are starting to look like Chinese tourism to the United States is know in the crosshairs of China as the Sino-American trade war deepens. There have certainly been signs pointing in the direction of a potential escalation in terms of tourism, but now things are turning explicit, with Chinese state media openly calling for making tourism a “main battlefield” in the trade war. Needless to say, there’s plenty of reason for concern among U.S. tourism stakeholders with significant exposure to the Chinese market.
In fact, there’s might be reasons for concern for U.S. lawmakers as well. According to the U.S. Commerce Department, the 2.97 million Chinese visits made to the United States in 2016 generated a staggering $33 billion in tourist spending. A close to a full ban on Chinese tourism to the United States would prove damaging to U.S. tourism stakeholders—and even a limited ban could prove a blow to tourism businesses and retailers (just ask South Korea and Taiwan).
So how did we get here?
While things have been heating up for some time—and generally in pace with U.S. tariffs on Chinese imports—the perhaps strongest indication of the trade war extending into tourism came at the beginning of July.
In a notice issued by the Chinese Embassy to the United States, Chinese tourists were warned about the allegedly vast number of dangers in the United States. In addition to warning about the “extremely expensive” health care in the United States, the note also took a swing at safety—a key concern for Chinese tourists. “American public security is not sufficient, shootings, robberies, and theft are frequent,” it read.
It started with strongly worded notices about violence and crime in the United States from the Chinese embassy
Just a week later, the United States was framed as “hyper-violent” in an extraordinarily aggressive piece even for traditionally more hardline state-owned Global Times. Referencing the Chinese Embassy’s travel warning, the piece went on to argue that “If you are Chinese, take your embassy’s travel warnings very seriously before planning your next holiday or deciding where to send your kids to college, because by coming to America you risk being shot, robbed, raped, or beaten.” Instead, the article argues, Chinese consumers should give up their “obsession” with the United States and explore education and tourism opportunities elsewhere.
And now, following the United States’ threat of imposing new tariffs on an additional $200 billion worth of Chinese goods, tourism looks even more in dire straits. As is rightly pointed out in a Global Times editorial, the United States runs a significant service sector trade surplus with China—although far from making up for the deficit in goods—and therefore, tourism (which counts as service exports) should be made a “main battlefield” as the trade war escalates. This both as a tit-for-tat strike in the trade war and as a means of reducing China’s service trade deficit.
State media suggests that tourism should be made a “main battlefield” in the trade war
If things couldn’t be more explicit, the editorial also suggests “tourism-related entities, Trump Hotels included, should stand on the front lines” together with soybean farmers if the trade rift deepens. Or in other words, tourism business interests (including Trump’s own) should rank among those pushing for an end of the Sino-U.S. trade conflict. Leveraging Trump business interests to further Chinese interests in U.S. policy isn’t a foreign concept in Beijing, which may have gone those exact lengths to provide relief for sanctioned ZTE.
However, the fact remains that there are many good reasons for China to avoid bringing tourism into the trade war fold. For starters, such sanctions would predominantly affect Democrat-dominant states like California and New York—perhaps not the best way to avoid bipartisan support of the trade war. Moreover, Chinese companies rank among some of the biggest stakeholders in Chinese travel in the United States, including state-owned airlines. Chinese business interests would most certainly be collateral as Beijing tries to go after U.S. tourism stakeholders.
Chinese stakeholders are the most exposed to the type of tourism that China could realistically limit
More importantly, there’s only so much Beijing can do about Chinese tourism in the United States. A blanket ban on travel to the United States would be devastating for everything from China’s state-owned airlines to Chinese business travelers and even students that unavoidably need to travel to the United States. And if Beijing were to impose a South Korea-style ban on tour groups alone, then the most significant part of the economic damage would be on Chinese tour operators in the United States, travel agents, and airlines.
It goes without saying that the lion’s share of the $33 billion in Chinese tourist spending can’t be attributed to travelers on cut-cost Chinese tours in the United States. Indeed, the flow of the significantly more profitable independent travelers, business travelers, and even VFR (visiting friends and relatives) travelers would largely remain unaffected.
To that end, another inconvenient truth about Chinese tourist spending in the United States is that the $33 billion spent in 2016 is likely to a large part masked investments and pure capital flight—things that Xi Jinping has been a champion of combatting. The $33 billion figure doesn’t even pass the laugh test: it comes out at over $11,000 spent by the average Chinese visitor to the United States per visit. Either the United States is exceptionally expensive—and much more so than notoriously expensive countries like Switzerland—or Chinese “tourist spending” is more “spending” than it is “tourist.”
China’s tourism trade deficit with the United States represent challenges unrelated to the trade war
So, while there’s certainly good reason for Beijing to try to reign in some of that “tourist spending” in the United States, whether for trade war or restricting capital outflow reasons, this isn’t something new and has been the ambition all along. Again, it’s also highly unlikely that these extreme spenders count to the tour group visitors to the United States that could realistically be limited in the first place.
And while Chinese state media argues that “the US is not the only destination for Chinese tourists”—the same goes both ways. China isn’t the only source market for the U.S. tourism industry. In fact, U.S. tourism source markets are much more diversified than that of, for example, South Korea—and so is the economy as a whole. Restricted tourism flows to the United States would do far less harm than such measures have done to destinations like South Korea and Taiwan, and even in those places, the damage has been limited.
“The US is not the only destination for Chinese tourists”
In other words, it’s clear that Chinese tourism in the United States risks being on the trade war chopping block in Beijing—but the actual damage it can do is far exaggerated. It’s definitely not good news for U.S. tourism stakeholders, but it’s also nowhere near the doom and gloom that Chinese media frames it as.