China should make tourism, services the main battlefield in trade frictions with US

As the Trump administration launched what observers called the biggest trade friction in economic history to reduce its trade deficit with China, some US companies are thinking about tourism, one of the few areas in which the US runs a trade surplus with China.

Earlier this month, a group of US tourism-related companies came to China to promote US tourism in the city of Harbin in Northeast China’s Heilongjiang Province. Chinese tourists have become a hot topic in the global travel market, attracting industry-wide attention. Last year, Chinese tourists made 131 million overseas trips, with total spending hitting $115.3 billion. China is in the midst of a boom in outbound tourism, giving the US a tourism export surplus to China.

However, the trade row initiated by the US is likely to deal a serious blow to bilateral economic ties. If US President Donald Trump continues to escalate trade tensions, China needs to make services trade the main battlefield of the trade friction.

Distinct from merchandise trade, trade in services refers to the sale of intangible products such as tourism, telecommunications, advertising and accounting. China has a big deficit in trade in services, and the US appears to be one of the main sources of China’s services trade deficit.

However, the US is not the only destination for Chinese tourists. As China-US trade tensions continue to harm bilateral ties, most Chinese people have no reason to continue spending their holidays in the US.

The US and various emerging tourism destinations are competing fiercely for Chinese tourists, and Chinese people’s patriotism could easily break the balance of the status quo.

If trade friction woes grow, tourism-related entities, Trump Hotels included, should stand on the front lines alongside soybean farmers if Trump thinks someone must be sacrificed in the interests of the US.

Trade in services is a key aspect of China-US economic exchanges. Washington has long been looking for ways to attract more Chinese tourists or open up China’s financial service market to Wall Street banks and other financial institutions. However, the trade dispute initiated by Trump will perhaps obstruct the process of China’s opening-up toward US financial sectors.

If Trump wants to use a trade war to solve the imbalance of merchandise trade, it will be an opportunity for China to reduce its services trade deficit with the US, especially in the financial sectors.