Macau’s three U.S.-based gaming operators Wynn Resorts, Las Vegas Sands and MGM Resorts International couldn’t have been pleased last week to hear that President Donald Trump plans to tax an additional $300 billion of Chinese imports.
D-Day for the 10 percent tariff is September 1. Together with an existing 25 percent tariff on $250 billion of Chinese goods, it will mean nearly every product that enters the country from China will be affected, including consumer goods ranging from TVs, laptops and cell phones to toys, sneakers, backpacks and children’s books—unless Trump relents, as the Chinese are certain not to cave in to what a government spokesperson has termed “blackmail.”
If the tax is imposed it will open a new front, likely the bloodiest yet, in the year-long trade war between the world’s two largest economies, a war that’s slowing global growth, disrupting supply chains and increasingly spooking consumers on both sides of the divide.
Beijing, of course, is threatening retaliation. That’s going to make life even more difficult for U.S. companies doing business in China. Depending on how ugly things get, Wynn, LVS and MGM could find themselves in something of a precarious position.
“The mix of trade tensions and the protests in Hong Kong are really putting a strain on the Macau industry,” analyst Caitlin Noselli, who covers gaming and lodging for Bloomberg Intelligence, told GGB News.
Sands, which reported second quarter earnings July 24, saw VIP revenue fall 13 percent on a decline in volume of nearly 12 percent during the three months that ended June 30. The more profitable premium mass segment was also down but by a lot less, 4.2 percent.
A double-digit slide at the high end doesn’t mean as much for mass-focused LVS as it might, say, for Wynn. On a percentage basis, the overall market, which saw a 15.6 percent drop in VIP in the second quarter, fared worse. And, in any event, VIP, as Noselli notes, has been slowing since late 2017 as the territory evolves toward the more well-rounded and ultimately more profitable regional tourism destination everyone says they want.
The thing about the trade war is that isn’t helping. Not because it’s the sole reason for the decline in VIP, which it isn’t, but because it “may have exacerbated it,” as Noselli and BI senior analyst Brian Egger noted in their coverage of Sands’ results.
That’s what’s troublesome.
“We hear from our people that customers are concerned,” LVS President Rob Goldstein said on the 2Q earnings call. “It is impacting some of their business.”
The point is, there’s a lot going on here.
Speaking late last week to GGB, Brendan Bussmann, direct of government affairs for gaming industry consultants Global Market Advisors, put it this way: “I wouldn’t necessarily attribute everything to the trade war. It’s more the overall geo-political environment.”
Take your pick:
- Vulnerabilities in the economic picture globally
- Slowing growth in China, coupled with rapidly rising household debt
- The politics of an upcoming U.S. presidential election, which will provide little incentive for Trump to rein in his carefully crafted image as a loose cannon
- A political dynamic in China in which the disruption in Hong Kong, which Beijing views as an existential threat, coupled with the hostility out of Washington, is strengthening the hand of hard-liners within the Communist Party
Noselli noted that luxury retailers in Hong Kong and Macau, traditionally seen as a proxy for VIP sentiment, are feeling the pinch, as are some hoteliers in Hong Kong and elsewhere in Asia.
“There is a lot of tension in the area right now,” she said. “Consumers may be pulling back.”
Which, from the standpoint of Macau gaming, begs the question: What if things get worse? What if the new Trump tariff becomes a reality next month? What if he follows through on a threat to hike it to 25 percent?
Noselli, for one, refused to speculate. What she does know, she said, is that the Chinese government “is not happy with its citizens traveling to Macau and putting money in U.S. companies.”
So, while she sees the casino landscape in Macau as “pretty stable” on the whole, she said, “We’re particularly concerned about VIP, and have been for some time. We definitely think there will be more declines.”