FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
August 28, 2018
- US No Longer Top Destination For Foreign Travelers
- How to Get More Foreigners Traveling to the US Again
- President Trump’s Obsession With the Trade Deficit
- The “Trump Slump” in Tourism & the Trade Deficit
- Be Proud of America Again, Not That You Weren’t
- Fed Still Hawkish, 2Q GDP Report, Consumer Confidence
[timeless]
Q2 hedge fund letters, conference, scoops etc
Overview
Today’s topic is probably something you haven’t heard about but it is both interesting and troubling. The fact is the United States has seen a decline in the number of foreign travelers visiting our shores since the peak in 2015.
It may surprise you to know that more foreigners travel to Spain these days than the US. Surprised me too! Spain welcomed an estimated 82 million visitors last year, making it the second most-visited country behind France at 89 million. The US had only 73 million foreign visitors last year, down about 4% from 2016. We’ll talk about why that is as we go along today.
Lawmakers in Washington need to focus on how to encourage foreigners to travel to the US more and buy more goods that are “Made in America.” That would be a boost to the economy and would go a long way toward reducing our trade deficit which President Trump and others are so worked-up about.
US No Longer Top Destination For Foreign Travelers
According to the Visit U.S. Coalition – which is made up of owners of hotels, restaurants, airlines, amusement parks, shopping centers and so on – the number of international tourists coming to our shores has fallen by about 7½ million people since 2016. Wow!
Prior to September 11, 2001, the United States was the destination for about one-in-six international trips. Now we are the destination for only about one-in-eight. As noted above, more people travel to France and Spain per year than the United States.
Travel industry economists calculate that this decline has reduced foreign purchases of American goods and services by some $32 billion the last two years. They estimate that about 100,000 fewer jobs have been created annually as a result of fewer tourists visiting from abroad.
Meanwhile, international tourism arrivals worldwide increased 7% in 2017 – a seven-year high – while the United States saw foreign arrivals fall over 4% last year. The US is clearly missing out on the global travel boom.
How to Get More Foreigners Travelling to the US Again
So why aren’t the Brits, Germans, Japanese and Chinese coming in the numbers they used to? And why is it that even as international travel is up worldwide, America’s share of the tourism traffic is falling?
There are three likely explanations. First, the dollar has strengthened which makes it more expensive to travel to and shop in America. Second, the U.S. government has made it more difficult to come into the United States via customs and immigration enforcement, in order to keep terrorists and other bad actors out. And third, and more recently, many foreigners don’t like President Trump, so they spurn coming to America, or so we are told.
There isn’t a lot we can do about the first factor. The dollar is strong because the US economy is roaring. While the US dollar weakened in 2017, it is still considerably higher than it was in late 2014. We certainly don’t want to try to increase tourism by purposely weakening the dollar – that would be foolish.
We could expedite entry into the United States by reducing customs hassles and delays for families and business travelers. This is tricky, however, because we surely don’t want to allow criminals, terrorists or drug runners to slip through the cracks. The question is, can customs and immigration enforcement better target the potential troublemakers? The answer is probably yes.
President Trump’s Obsession With the Trade Deficit
Ever since Donald Trump started running for president, he has railed against America’s large and persistent trade deficit. His recent and upcoming tariff policies are intended to try to reduce these trade imbalances. He argues that countries which have large trade surpluses with the US are unfairly taking advantage of America.
As I have argued in these pages in recent weeks, trade deficits are not always a bad thing. As the largest and richest nation on the planet, it is not unusual for us to run trade deficits with other countries, especially those that make things we no longer want to produce in this country. In short, we can afford it.
I argue that what matters most is the overall volume of trade, not the trade deficit. Yet Mr. Trump is certainly right that if he can induce foreigners to buy more of our Made-in-America products – our cars and trucks, our agricultural products, technology, etc., etc. – this would greatly benefit American workers and businesses. The problem is, slapping tariffs on various imported goods doesn’t accomplish that and could lead to a trade war.
The “Trump Slump” in Tourism & the Trade Deficit
When a foreigner comes to the United States and buys goods and services here with money that was earned overseas, this lowers the trade deficit. Question: What if there is a relatively easy way to trim the trade deficit without new tariffs and complicated trade deals that can take years to consummate, if ever?
In fact, there is: Get more foreigners to travel to the United States and buy things here.
As for the so-called “Trump Slump” in tourism, the president could take steps that reverse this effect. He could issue public service announcements around the world that the United States is laying out the welcoming mat for foreign travelers. He could make that point frequently in his foreign speeches.
When it comes to commerce, Mr. Trump has emerged as a highly effective one-man Chamber of Commerce selling America to investors. He has announced to the world that America is open for business. Now he needs to persuade foreigners that America is open for tourism. This might be the best way to win these trade wars.
Next, the travel industry itself needs to do a better and more comprehensive job marketing America and our natural and man-made wonders. Of course, this assumes that most in the travel industry don’t feel like New York Governor Andrew Cuomo who recently said America “was never that great.”
Conclusions: Be Proud of America Again, Not That You Weren’t
I’ll close with this one final thought. In the section above where I listed the reasons for the drop in tourism in recent years, I didn’t mention President Obama. Yet I believe he did indeed contribute to the decline. Like Governor Cuomo, Mr. Obama said the same thing about America not being great in speeches around the world – his so-called “Apology Tour.”
President Trump is just the opposite! Whether you like him or not, he is a passionate cheerleader for the US. As Americans, we should be proud of our country and thankful for our many blessings. I assume the vast majority of my clients and readers never felt otherwise.
We should encourage our foreign friends and business associates to visit the US and see some of our breathtaking destinations like the Grand Canyon, Yellowstone, Disney World, the Golden Gate Bridge, the Statue of Liberty, Niagara Falls, Manhattan and other popular attractions.
Fed Still Hawkish, 2Q GDP Report, Consumer Confidence
Shifting gears, President Trump has been complaining of late about the Fed raising interest rates any further. He’s even gone so far as to question the judgement of Fed Chairman Jerome Powell – who Trump himself nominated for that office late last year.
The minutes from last Fed policy meeting on July 31/August 1 came out last Wednesday and confirmed that the FOMC is still on-track to hike the Fed Funds rate another 25 basis points at the next policy meeting on September 25-26. Fed Funds futures are pricing a near 100% chance of a rate hike next month, and a 70% chance of another increase at the December 18-19 meeting.
The Commerce Department will release its second estimate of 2Q GDP on Wednesday at 8:30 a.m. Eastern. The pre-report consensus is for 4.0% growth (annual rate), compared with the initial estimate of 4.1% last month.
The Consumer Confidence Index for August came out this morning with a reading of 133.4, compared with 127.9 for July. This was the highest level in almost 18 years and was well above the pre-report consensus of 127.2. Most Americans, especially those with mid-to-higher incomes, are feeling increasingly positive about the economy.
Wishing you a great end to the summer,
Gary D. Halbert
SPECIAL ARTICLES
International Travelers Not Coming to America
United States Missing Out on Tourism Boom
Fed Minutes Signal September Rate Hike
Gary’s Between the Lines Blog: President Trump Deregulating at a Record Pace
