Could Vegas and Macau feel the impact of US-China trade war?

Donald Trump
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With a range of options at China’s disposal to respond to president Trump’s new trade tariffs, Edward Lowton considers what the consequences could be for Las Vegas and US operators in Macau.

When it comes to diplomacy, US president Donald Trump seems to have based his negotiating strategy on the 1955 James Dean film, Rebel Without a Cause.

Whether having an inconclusive knife fight as part of a ‘crazy game’ in front of the Griffith Observatory or playing chicken, driving towards the edge of a cliff in a US-made 1946 Ford Super De Luxe, Dean establishes himself as the titular rebel, an outsider figure who shakes-up the status-quo.

Wearing “a coat he borrowed from James Dean”, Trump has made redefining the US’s trading relationship with China a key plank of his policy framework.

Yet the Trump administration’s imposition of tariffs on imports from China has been criticised by a number of analysts and commentators as an ill- judged solution to the trade issues the two countries are trying to resolve.

While the nuances of the trading relationship between the US and China are beyond the scope of this comment piece, the fact remains that both tourism and the gambling industry are vulnerable if a trade war does come to pass.

China’s approach to diplomacy is very different to that of the US. While to save face, Beijing will be required to respond, the extent of that response will not necessarily be limited to overt tit-for-tat tariffs.

“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.

In 1928, Mao Zedong wrote “When the enemy advances, we retreat. When the enemy rests, we harass him”, and advised “encircling” an opponent.

Throughout its four millennia history, Chinese culture has valued the idea of not directly resisting force or confrontation, but instead flowing with the force of an aggressive action before redirecting back upon its initiator.

This idea can be found in a diverse array of contexts, from martial arts such as Taijiquan, through board games such as Go (weiqi in Chinese, which roughly translates to the ‘encircling game’), to the use of negative space in Chinese landscape painting. So how does this relate to gaming?

Of the potential options at China’s disposal to respond to the new trade tariffs, perhaps one of the most obvious is restricting visits to the US. As Elliott Parker, a professor of economics at the University of Nevada, Reno, suggests “the Chinese are likely to go to tourism fairly quickly.”

While Las Vegas is not the most popular US destination for Chinese visitors, nevertheless Chinese players are valuable for casino operators given their preference for baccarat, which now accounts for 18 percent of total casino win on the Strip.

It’s not China’s first rodeo when it comes to utilising tourism restrictions to exert diplomatic pressure. In March last year, the PRC restricted tourism to South Korea, imposing a ban on the sale of package tours which lead to a significant drop in casino operators’ revenues, after the US deployed its THAAD missile defence system in the country. The key point is that Beijing never specifically linked the ban to the THAAD deployment and the restrictions were introduced without fanfare.

On the other hand, when it comes to the US, the main beneficiaries of Chinese tourism are predominantly democratic states such as California, Illinois, Massachusetts, and New York.

In light of this, a tourism ban would only create a minor dent in the economies of the pro-Trump states, making the political value of such a move debatable.

Then there’s Macau. Three major US operators – Wynn Resorts, Las Vegas Sands, and MGM Resorts International – each hold gaming concessions in the territory through their Hong Kong-listed subsidiaries.

With concession renewal looming in 2020 and 2022, it seems difficult to imagine that strained relations between the US and China will not be a factor colouring the final decision, all the more so in the case of Sands which is owned by key Trump-ally Sheldon Anderson.

Yet with Trump’s presidential term due to end in January 2021, it’s quite possible that the Chinese government may opt to steer a more cautious course and wait and see where the political chips fall.

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

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