Inbound travel to the United States from China has come under increased pressure from the ongoing US-China trade war. Escalating tariff coverage and rates, punitive travel advisories, critical media coverage, restrictive visa policies, and surging exchange rates have stifled flows of tourists and tourism spending in the US:
Inbound visits to the US from China to the US fell 5.7% year-over-year in 2018, ending 14 consecutive years of arrivals growth between 2004-2017.
Through six months, 2019 inbound visits are down by 2.2% compared to the same period in 2018.
Visa issuance to mainland China fell 13.3% year-over-year in 2018, leaving it 44.2% below its peak in 2015.
Through six months, 2019 visa issuance is down 12.5% compared to the same period in 2018.
The Chinese government has shown a willingness to employ tourism policy as a lever in the ongoing trade dispute as each country approaches full coverage of goods imports with new and increased tariffs. In turn, the downside risks to US tourism sector have risen alongside broader economic and political tensions.
China plays a key role in US inbound travel as the third largest market for overseas arrivals and the largest market for inbound visitor spending. Chinese tourists spend approximately $5,800 per visitor over the course of their trip. In comparison, visitors from the United Kingdom, the largest market for overseas arrivals to the US, spend approximately $2,500 per person.
We estimate that approximately 351,000 visitor arrivals to the US from China were lost in 2018. Using Global Travel Service spending data, this indicates a loss of approximately $2.0 billion in visitor spending for the United States. For 2019, we estimate approximately 648,000 lost visitor arrivals and, in turn, approximately $3.8 billion in lost visitor spending. (See the full report for methodology details for these estimates.)
If the trade conflict continues without resolution, we calculate that the US can expect to lose the opportunity to capture approximately 857,000 million additional annual visitors and an associated $5.3 billion in visitor spending in 2020.
• In total, there would be a loss of 1.9 million inbound visitors and $11 billion in visitor spending from China over the three-year period 2018-2020.
New policies caused a sharp deviation from inbound travel growth path
Restrictive policies and growing antipathy have caused a sharp deviation from the course of Chinese inbound arrivals growth. Arrivals volume from China averaged 20% growth per annum over the decade through 2017. Both the US and Chinese governments have employed travel advisories, critical media coverage, and visa policies as tools to curtail bilateral tourism for their own ends.
We discussed in July 2018 the outcome of China’s willingness to weaponize services trade, in particular travel and tourism, in response to geopolitical conflict. Following the late-2016 announcement of joint military installation of the US missile-defense system THAAD in South Korea, the Chinese government unofficially ordered its travel agencies to halt group travel to South Korea, among other retaliatory measures. In turn, inbound tourist arrivals fell 48% year-over-year in 2017 and tourism spending followed suit.1 Following his election in May 2017, South Korean President Moon Jae-in paused development of the THAAD system and soon after group travel from China reopened.
China has not yet directly instated such a ban against the US. However, recent reciprocal travel advisories focused on safety risks have fomented negative sentiment toward the US.
The Chinese government’s most recent warnings, issued through its Ministry of Foreign Affairs and Ministry of Culture and Tourism on June 4, 2019 highlighted the potential for “harassment” by US law enforcement agencies and the frequency of “ shootings, robberies, and thefts.” Consequently, there have been increasing reports of cancellations from student and broader tour groups.
The US Department of State issued similar safety warnings in its January 3, 2019 travel advisory which emphasized “arbitrary enforcement of local laws as well as well as special restrictions on dual U.S.-Chinese nationals,” exit bans, and detention without access to US consular services.
Official action has been accompanied by broader negative media coverage in each country. Each has portrayed the other as an antagonist and a danger to its citizens abroad, escalating unfavorable sentiment and underscoring the power of travel and tourism as a bargaining tool in the ongoing trade conflict.
Visa issuance policy changes add additional tension
Beginning in November 2014, the US and China entered a reciprocal agreement extending business and tourism visa validity to ten years. Moreover, this agreement led to the implementation of more stringent application standards such as the informal requirement that Chinese applicants travel internationally to another country before applying for admittance into the US.
In response, visa issuance to mainland China spiked in 2015 and has fallen steadily in the years since. In 2018, 1.5 million visas were issued, representing a 13% year-over-year contraction and a level 44% lower than its peak.
B-visas are issued by the US for short-term business and tourism trips and accounted for 85% of all visas issued to citizens of mainland China in 2018. B-visa application volume has fallen 40% from its 2015 level while B-visa refusal rates have risen 2.3% annually, on average, over the same period. In 2018, the B-visa refusal rate reached 17%, compared to 10% in 2015, and refusals appear to be further stifling demand.
Visa issuance data for the first six months of 2019 indicate that the current downward trend is likely to extend through this year. January-June 2019 visa issuance volume is 12.5% below 2018 levels over the same time period.
Arrivals fall short of expectations and compel forecast adjustments
The Tourism Economics US Inbound Travel Forecast of Spring 2018, prior to expectations of a prolonged trade war with China, anticipated 5.3% growth in inbound visitation from China in 2018. Official data from the National Travel and Tourism Office (NTTO) indicated a 5.7% decline in inbound visitation from China in 2018. This was the largest drop in arrivals among all major source markets.
The Spring 2018 forecast additionally projected 10.6% growth in 2019 and 10.1% growth in 2020. The current (Spring 2019) forecast, which includes one quarter of NTTO data, revised 2019 expectations down to 1.9% annual growth, and revised the forecast for 2020 down to 5.4% annual growth. Available data is markedly less rosy through the first six months of 2019 with inbound visitation down 2.2% compared to the same period in 2018.
Notably, the Chinese are continuing to travel elsewhere and the growth path for inbound travel to Canada from China provides a strong contrast. Inbound visitation to Canada grew 8.5% in 2018 and is expected to grow 7.9% in 2019. Thus, the fall in US arrivals from China involves a loss in market share rather than a general fall in Chinese travel.
Currency’s role in the trade war and tourism trends
On 5 August, 2019, the USD:CNY exchange rate crossed the symbolic 7-to-1 threshold previously averted by Chinese monetary policymakers. In turn, the Trump administration officially branded China as a currency manipulator, deriding their repeated devaluation of the yuan. Currency depreciation can offset a portion of the negative tariff impacts faced by China.
At the same time, a weak yuan make the US less affordable as a destination for Chinese visitors. Now that the 7:1 threshold has been eclipsed, further currency devaluation remains a plausible avenue for Chinese policymakers to retaliate against US trade war measures given waning scope for China to impose new tariffs on the US.
Estimated loss of visitor arrivals and spending in 2018, 2019, and 2020
We estimate that approximately 351,000 visitor arrivals to the US from China were lost in 2018. Using Global Travel Service spending data, this indicates a loss of approximately $2.0 billion in visitor spending for the United States. For 2019, we estimate approximately 648,000 lost visitor arrivals and, in turn, approximately $3.8 billion in lost visitor spending. (See full report for methodology details for these estimates.)
If the trade conflict continues without resolution, we calculate that the US can expect to lose the opportunity to capture approximately 857,000 million additional annual visitors, and an associated $5.3 billion in visitor spending in 2020. In total, there would be a loss of 1.9 million inbound visitors and $11 billion in visitor spending from China over the three-year period 2018-2020.