Economy

Trade War Casualty: Chinese Tourism — And Businesses Serving Tourists

U.S. China flags

Trade wars are wars where injuries accrue cut by cut, tariff by tariff, slices taken off the top of GDP. But getting a bit granular, trade wars hit some business verticals (which of course make up GDP) harder than others.

The latest jobs report shows that 75,000 jobs were reported versus the 175,000 expected, and where prevailing wisdom indicates that firms are holding back on staffing amid uncertain demand from consumers and where costs are rising. The trade war has come home, on what might be a larger scale. Recent individual company commentary underscores what happens when countries bare teeth at one another and take economic bites.

Consider the fact that Tiffany & Co. said this past week that, with cuts to its growth targets, earnings would grow low- to mid-single digits, where once that rate would have been mid-single digits. One culprit behind the lower guidance is “dramatically” lower spending by tourists, in particular, Chinese tourists. The tariffs on hundreds of billions of dollars of goods, speaking cumulatively, cuts into the pocketbooks of consumers, well, everywhere.

“We have seen a sharp decrease to sales to tourists in the U.S. in the range of 25 percent. Even sharper for Chinese tourists,” Tiffany & Co. Chief Executive Officer Alessandro Bogliolo said on the company’s conference call as cited by CNBC.  Those tourists, said management on the call, represent low double-digit percentages of the retailer’s U.S. sales.

Travel from China, according to 2018 numbers, slipped by more than 5 percent. That’s the first decline in 15 years, and a relatively strong dollar does not help matters.

The ripple effects seem poised to get worse.

China, through its Ministry of Foreign Affairs, has warned against Chinese tourists coming to the U.S., and has said those working and studying in the U.S. should be cautious. A decrease in tourism could hit leisure spots (like casinos). Wall Street analysts have weighed in on the impact, which runs into the billions of dollars. In one estimate, as cited by CNBC, analysts at Bank of America Merrill Lynch has said that China-to-U.S. tourism could drop by 50 percent, translating to an $18 billion hit to spending. Analysts at that same bank have estimated that in one scenario, United Airlines, which has roughly half of the capacity in terms of flights to China, could see a top-line headwind of 1.4 percent if tourism drops by 50 percent.

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