The Trade War’s Invisible Damage
Many people are bracing for the impact that the U.S.-China trade war is going to have on the cost of consumer goods. They often aren’t aware that it’s already dealing a blow to an invisible export—America’s hotel industry and the many businesses that support it.
Visitors from China spent nearly $35 billion collectively last year—more than tourists from any other country did—even though China had the fifth-largest number of international visitors, according to data from the International Trade Administration. Visitors from China spend an average of $11,533 each annually, compared to the $3,217 average for all international visitors per year. All of this counts as an export in our trade balance.
Now, with the trade war continuing, spending by travelers from China is regressing, according to data from the U.S. Department of Commerce. In 2018, spending dropped for the first time in the last decade, by 2%, after growing 4%, 11%, and 16% in the three years previous. Revenue per available room is dropping in key destinations for travelers from China, among them New York, Los Angeles, Orlando, Miami, and Oahu. Tourists from China are increasingly staying home because of their government’s travel alerts claiming that the U.S. is too dangerous to visit.
I am witnessing the consequences of this firsthand as the CEO of Cain Millwork, a 100-employee architectural millwork firm located in Rochelle, Ill. My firm partners with hotel owners, developers, and general contractors to build their lobbies, common areas, and amenity spaces. We’ve been around since 1978.
Hotel construction usually booms this time of year. Hotel companies award contracts during the spring and summer so they can tackle smaller projects before the busy holiday season or prepare for larger ones that will start in January.
That’s not the case this year. Although our pipeline of work remains strong, we’re already seeing a slowdown in our hotel business. Properties are delaying decision-making on key projects because of the uncertainty, so the construction is taking longer to finish. One hotel project we expected to complete this fall has now been postponed until after the winter holidays.
These types of delays mean it will take longer for developers to profit from their investments in renovations and new construction. At a time when labor costs in hotels outstrip revenue growth, that doesn’t bode well for their owners.
We aren’t willing to take a wait-and-see approach on China. Our firm directly and indirectly employs hundreds of people, when you factor in our vendors and subcontractors. By maintaining our revenue and margins, we make sure the jobs downstream are secure.
We’re not alone. Many other U.S. firms that produce “invisible exports” that support tourism from China are racing to cope with similar challenges.
The point of modifying our trade policies is to strengthen the business community. At the moment, leaders like me have to spend much of our time staying two steps ahead of artificial market factors. That’s a big distraction from doing what we do best: innovating, building opportunities, and, ultimately, creating jobs.
Like other trade wars, this one will eventually blow over. My hope is that that won’t happen too late to avoid serious disruption to companies like mine, which are the backbone of our economy. If some have to cut jobs, it will lead to a lot of collateral damage for the American worker.
As business leaders, we have some power to prevent that from happening. We need to tell our elected officials how current trade policy is affecting our businesses so they can make informed decisions going forward. They can’t possibly keep up with what’s going on in every business in every industry on their own.
It’s worth taking the time. The sooner we stop the loss of tourism from China, the more quickly CEOs like myself will be able to bring our focus back to where it belongs: growing our businesses and creating jobs. It’s crucial that we speak up now before the American people pay the price of this trade war in full.
Dan Levin is the CEO of Cain Millwork, a longtime member of leadership organization YPO, and an associate board member of hotel trade association ASFONA.
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