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Tourism and gaming could be hurt as Trump inches toward trade war with China

Humberto Sanchez
Humberto Sanchez

President Donald Trump’s escalation in trade tensions could hurt Nevada’s key industries of tourism and gaming as China looks for ways to retaliate.

“Certainly Las Vegas could feel the brunt of a trade war in the form of China basically deciding that they are going to make it difficult for Chinese to travel the U.S.,” said Elliott Parker, a professor of economics at the University of Nevada, Reno, who focuses on trade issues.

“Nobody wants this to get out of hand, but it could,” Parker said.

Members of the congressional delegation also are concerned, including Democratic Rep. Dina Titus, who represents the Strip, and fellow southern Democrats Ruben Kihuen, Jacky Rosen and Sen. Catherine Cortez Masto.

“International tourism, particularly from China, is a critical market opportunity for Las Vegas and the United States as a whole,” Titus said in a statement emailed by her office. “In fact, Chinese tourists spend the most of any international traveler to the U.S., according to the Department of Commerce, supporting the more than 15 million tourism jobs in our country. The Trump Administration should recognize the potential negative impact of further escalation on my Congressional District. Every empty airline seat from Beijing to Las Vegas means thousands of dollars of lost economic benefit to Southern Nevada.“

Even prior to any official restrictions on tourism, Chinese-run media could couch the trade spat in a way that discourages Chinese nationals from traveling to the U.S.

“I think this trade war may be portrayed very differently in China, and that would affect the general public opinion, as well,” said Billy Bai, a professor and associate dean of the William F. Harrah College of Hotel Administration at UNLV.

Las Vegas is a popular destination for Chinese tourists, bolstered by a direct flight from Beijing, laws forbidding gambling on the mainland and difficulty traveling to Macau, Bai said.

In 2016, 233,132 Chinese tourists visited Las Vegas, according to the Las Vegas Convention and Visitors Authority. The city saw slightly more than 200,000 Chinese visitors in 2015.

Although they only made up about one half of one percent of the 42.9 million visitors who came to Las Vegas in 2016, Chinese tourists are valuable for the gaming because they favor games like baccarat, which are very lucrative for casinos.

“The baccarat numbers are a proxy for high-end Asian play,” said David G. Schwartz, director of the University of Nevada Las Vegas' Center for Gaming Research. He noted that Nevada casinos collectively won more than $1 billion from baccarat play in 2017.

Kihuen, whose district lies north of Las Vegas, called on the president to seriously negotiate with China rather than antagonize the Asian giant over Twitter.

“Counteracting China's growing economic influence requires trade policy developed through negotiation and diplomacy, not social media,” Kihuen said in a statement provided by his office.

“His chest-thumping and trade wars with China will cause more harm than good,” he added. “His latest round of tariffs could seriously impact the tourism industry in Nevada, which generates nearly $60 billion in economic activity, and supports more than 400,000 good paying jobs.”

Las Vegas has already seen a recent decline in Chinese tourists due to President Xi Jinping’s 2013 anti-corruption campaign.

“If you look at the baccarat numbers...after the Chinese government’s 2013 crackdown, there is a definite decline,” Schwartz said.

“Anything that inhibits the free flow of money and people across borders is probably not going to be good for Nevada gaming,” he said of the ongoing trade tensions.

Rosen, who represents the district south of Las Vegas and is running for Senate, likely against Sen. Dean Heller, agrees that China must be confronted on its unfair trade practices, but “we must accomplish this in an effective way without damaging Nevada's economy,” she said in a statement from her office. “We need smart, strategic responses that strengthen international trade rules and standards so America can compete, not short-sighted retaliations that will ultimately hurt Nevada's businesses and hardworking families."

Ryan King, a spokesman for Cortez Masto, said the senator “remains deeply concerned about the potential impact of President Trump’s erratic trade and foreign policy on Nevada’s tourism, renewable energy sector and the economy overall. The Senator remains committed to keeping American jobs in the United States and protecting workers. She has serious questions about how the Administration is implementing trade policy by tweet.”

With no end in sight to the saber-rattling, experts believe that, along with restricting tourism and possibly discouraging travel to the U.S. through negative reports on state-run media, fallout from the tensions could also make it more difficult for American companies to do business in China, including Nevada gaming companies with interests in Macau.

The risks to Nevada’s top industries come as Trump has threatened to impose tariffs on an additional $100 billion of Chinese goods, which sparked a sharp response from Beijing.

"If the U.S. side disregards opposition from China and the international community and insists on carrying out unilateralism and trade protectionism, the Chinese side will take them on until the end at any cost," China’s Ministry of Commerce said in a statement on its website.

Chinese President Xi Jinping sounded a more temperate note last week when he promised to open the country’s economy further and lower import tariffs on products like cars, though.

Trump’s $100 billion tariff plan followed an initial proposal to slap tariffs on $50 billion worth of Chinese exports—about 1,300 products ranging from machinery to vaccines. The Asian nation had already retaliated by targeting $50 billion in imports from the U.S. to China, including soybeans, automobiles and chemical products. That represents about 38 percent of all imports from the U.S.

Further countermeasures are not off the table, though.

The tit-for-tat spat has so far focused on trade in goods, but if the skirmish intensifies, China may look to the services sector in an attempt to gain the upper hand.

China imported $130 billion of goods from the U.S. in 2017, while it exported $506 billion to the U.S., according to the Census Bureau. If China tries to match the Trump administration’s newest round of threatened tariffs, it will have to move beyond goods.

“The Chinese are likely to go to tourism fairly quickly,” Parker said.

A hint of things to come may lie in events in South Korea last year. China restricted tourism to the southern end of the Korean peninsula after the U.S. installed the Terminal High Altitude Area Defense (THAAD), a missile defense system focused on shooting down medium-range missiles from North Korea over areas of South Korea. The Chinese believed that the THAAD radar system could spy on its military activities.

“The installation of the U.S. Terminal High Altitude Area Defense (THAAD) system had angered China, with South Korea’s tourism, cosmetics and entertainment industries bearing the brunt of a Chinese backlash, although Beijing has never specifically linked that to the THAAD deployment,” Reuters reported in October.

The Chinese government allows U.S. gaming companies to operate in Macau, including companies based in Las Vegas such as Las Vegas Sands Corp., which reported $3.44 billion in net revenue for the fourth quarter of 2017, including $2.10 billion from Sands China Ltd., the company’s Macau subsidiary. The Sands is chaired by Sheldon Adelson, who is a GOP megadonor.

Adelson was among Trump's largest donors during the 2016 presidential campaign, giving millions to pro-Trump super PACs. The Adelson family bought the Las Vegas Review-Journal in 2015, and in October 2016 the Review-Journal gave Trump his first major newspaper endorsement. Adelson is unlikely to stay quiet if China's retaliation takes a toll on Sands revenue in Macau.

Macau has been a locus of growth for Adelson’s company, according to Daniel Briggs, Las Vegas Sands senior vice president for investor relations.

“When a market is growing, say 18 percent or so, as it did in the fourth quarter, and you’ve got better transportation infrastructure coming, you’ve got more hotel inventory coming, people in China are getting richer, and Macau remains the only place where gambling is legal in mainland China, there’s a lot of good secular growth,” said Briggs during a conference in Las Vegas last month.

Other Las Vegas firms doing business in Macau include Wynn Resorts, Ltd., which reported $1.69 billion for the fourth quarter of 2017, including $618.6 million from Wynn Macau, and MGM Resorts International, which reported $1.4 billion over the same period including $549 million from MGM China.

But Bai doesn't expect the Chinese to do anything too drastic.

“I don’t think they will go after any particular U.S. enterprise because that would hurt the local economy,” Bai said.

Agricultural products are also vulnerable during the trade dispute, though none of the state’s agricultural exports have yet been targeted by China, according to Nevada Department of Agriculture Director Jim Barbee.

The state sends about 16 percent of its total food and agricultural exports to China, which amounts to roughly $60 million and includes coffee/tea/spices, dairy products and vegetable crops such as garlic, onions and potatoes. “Again, none of these products are identified in the proposed tariff increase,” Barbee said.

Parker believes the most likely course of action if a trade war ramps up is for the Chinese to make it generally more difficult for American companies to do business in China through regulations and restrictions, which could in turn affect the bottom line of Nevada gaming interests. China could also opt to impose higher taxes on U.S. businesses, however, those take longer to impose and remove, Parker noted.

He also noted that the Chinese are very proud and, if put in a position where they cannot save face, they will fight irrespective of the economic fallout.

“The administration seems to believe that if you bluster with China, they’ll back down,” Parker said. “The point I would make is that China maybe doesn’t want to get into a full-blown trade war with us, but they would rather fight to the mat than to publicly back down because China doesn’t want to be treated like a second-rate country. So even if it did a lot of economic damage to China, I think the Chinese government would be willing to do it if the Trump administration blusters.”

Disclosure: MGM Resorts and Wynn Resorts have donated to The Nevada Independent. You can see a full list of donors here.
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