Tourism Economics Report: Trade Wars Expected to Cause 'Sharp' Decline in US Tourism

The Trump Administration’s escalating global trade war poses significant “high-risk consequences” for the U.S. travel industry, including potentially causing sharp declines in travel demand, according to a new report.

Published by Tourism Economics, an Oxford Economics company, the report says there is a “risk to the US travel sector should trade disputes and other policy changes intensify.” The analysis adds that an expanded trade war under the new presidential administration could “result in sharper declines in travel demand and economic output than previously projected.”

Specifically, the report is referencing the impacts of 25 percent across the board tariffs on Canada and Mexico, and a 10 percent tariff on the EU and China. In that scenario, the report authors said they "anticipate moderate slowing in US growth, with GDP growth in 2025 slowing to 1.7 percent" in what they called a "downside" scenario, compared to 2.4 percent in a "baseline outlook" scenario.

“Our findings warn of high-risk consequences for the US travel sector, with broad economic implications beyond tourism,” says the report.

There are three key ways that Trump’s intensifying trade war could negatively impact US travel, according to the report. They include:

• Travel Sentiment: Per the report, strained diplomatic relations and economic uncertainty could lead to weakened travel interest from leading US inbound markets, including Canada, Mexico, and the EU.
• Economic Pressures: A slowdown in US economic growth, coupled with recessions in Canada and Mexico should 25 percent tariffs go into effect, would curb travel demand.
• Exchange Rate Shifts: A stronger US dollar, resulting from tariff-induced economic shifts, would make travel to the US more expensive for international visitors, further dampening demand.

 
Looking specifically at the travel industry, the impacts of the trade war are likely to be “significant” and will include:

• Decreased Inbound Travel to the U.S.: International inbound travel to the US is projected to decline by 15.2 percent compared to baseline projections.
• Reduced Inbound Spending: Inbound travel spending in 2025 could fall by 12.3 percent, amounting to a $22 billion annual loss.
• Reduced Total Spending: Total US travel spending, including both domestic and inbound travel, could be 4.1 percent lower than baseline expectations, representing a $72 billion reduction in total travel expenditures.

The negative effects of an expanded trade war scenario are also expected to reach U.S. hotel room demand in 2025.

In particular, the report explains that domestic travel will be affected by slower income growth and higher prices, while international travel to the U.S. will be "hit by a trifecta of slower economies, a stronger dollar, and antipathy toward the U.S."

In this type of environment, there's potential for "an overall 1.9 percent loss in hotel room demand from the baseline scenario."

Finally, the report authors say "there are other downside risks that are not assumed as part of the expanded trade war scenario, such as Federal policy, funding, and staffing changes that affect border processing and travel infrastructure capacity. In many cases, the dust hasn't settled yet."

Historical Precedent for Industry Impacts

Historical data underscores the fact that trade and geopolitical tensions influence travel demand, says the report summary.

For instance, during the previous US-China trade dispute, the US share of China’s long-haul outbound travel market shrank considerably. Similarly, during past periods of strained US-Mexico relations, visitor numbers from Mexico declined by 3 percent, according to the report.

"Industry collaboration will be essential in mitigating negative impacts," says the report.

This new industry analysis comes on the heels of a West Jet executive stating last week that the airline is already seeing a decline in the number of Canadians traveling to the United States. Amid the administration's trade war and political rhetoric, Canadians are increasingly opting to skip destinations like Phoenix in favor of Caribbean locations.

Alex Cruz, vice chair of WestJet and former CEO of British Airways, said during an interview with CNBC that Canadians are increasingly avoiding the U.S. in retaliation for President Trump's steep tariffs on Canadian goods.

"There's clearly been a reaction," Cruz said. "Statistics are coming through about U.S.–Canada border crossings and they've been down over last couple weeks." 

"And we at WestJet have also noticed a decline in traffic," Cruz continued. Rather than visiting "Phoenix or Florida, it's Dominican Republic, Jamaica and Mexico," Cruz added. "So Canadians are seeking to continue traveling overall. It's just that it may shift from the U.S. to other leisure destinations."

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