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Will Trump accidentally destroy Las Vegas?

Thursday, 26 January 2017 15:15
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New US President Donald Trump has already stirred the pot with a number of inflammatory comments against China – and it is Las Vegas that could find itself in the hot seat when China retaliates. By Prof. I. Nelson Rose

 

President Donald Trump’s greatest strength, his success as a businessman, is also his greatest weakness. Take, for example, China.

 

For decades, the United States has had what looks like bizarre, self-contradictory positions toward the People’s Republic of China and Taiwan.

 

Prior to the Communist Party’s victory in China’s Civil War in 1949, there was only one China (ignoring the warlords and Manchukuo, the puppet state set up by Japan). When Chairman Mao Zedong captured the Mainland, he created a new government – the People’s Republic of China – and declared the PRC the ruler of all of greater China. This expressly included the island of Formosa and the little islands close to it, including Quemoy and Matsu.

 

The former rulers of the Mainland, the Chinese Nationalists, moved the remnants of their government – the Republic of China to the island of Formosa. They declared the ROC, informally known as Taiwan, as the sovereign government ruling over all of greater China.

 

Having two separate governments declaring themselves “China” obviously created some problems for the United States. For example, China is one of the founding members of the United Nations, and one of only five countries which have veto power over everything the rest of the UN might try to do.

 

But which China was the Security Council permanent member? Which China could send teams to the Olympics? The US had treaties with the ROC. Did this require the US to use military force if the PRC decided to invade Formosa? In 1960 this almost led to war. And it became a major issue in the US election for the President.

 

At the time, the US only recognized the ROC as the government of all of China. Both candidates, Vice President Richard Nixon and Senator John F Kennedy, pledged to use American force to defend the ROC, or at least the main island of Formosa, from military invasion by the PRC. But Kennedy said it would be impossible to protect Taiwan’s forward positions, the tiny islands of Quemoy and Matsu, more than 100 miles from Formosa and less than six miles from the Mainland. Nixon declared that he would not let Quemoy and Matsu be taken over by the Communists.

 

The issue was decided without a shooting war, in part because the reality was that the PRC had won the Civil War. The PRC controlled the most populous country in the world, with billions of citizens. Taiwan had one island, Formosa, which was 99% of its territory, a few other tiny islands and a population of around 20 million.

 

Facts eventually overcame most, but not all, political fiction.  It took years. The PRC had created a “bamboo curtain,” the Chinese counterpart to the “iron curtain” of Eastern Europe. The Mainland was isolated from virtually all outsiders.

 

President Nixon may have been antiCommunist, but he was a realist. Diplomacy has to be done slowly, carefully and often, mostly in secret.  Both Mao and Nixon wanted to figure out ways to break through the PRC’s bamboo curtain. But neither could be seen as being weak. 

 

One of the most interesting ideas that developed was “ping pong diplomacy.” Prior to 1971, it was virtually impossible for any American to visit the Mainland. Then, while visiting Japan for the 31st World Table Tennis Championships, the US Table Tennis team received an invitation to visit China.

 

China’s President Xi Jinping is unlikely to take kindly to any inflammatory marks made by President Trump

  

This opened the door to more sports and cultural exchanges.  Behind the scenes, Nixon sent Henry Kissinger, his National Security Advisor, on a highly secret visit to China to meet with Premier Zhou Enlai, then in charge of Chinese foreign policy. Finally, in 1972, Nixon flew with film crews to China to meet with Zhou and Mao.

 

The opening of China had enormous ramifications for every part of the world, including economic political and military ramifications for the US and China itself.  A small part, but of great importance to the gaming industry, was the decision by the PRC to allow its Mainland residents to visit Macau and the United States. But the problem of the “two Chinas” remained. 

 

While the Mainland remained locked behind its bamboo curtain, Taiwan grew into a successful business center. Once the PRC was open to trade, the Mainland became a world power. Taiwan became less dogmatic about being the only real government of China and quietly established relations with the Mainland. So Taiwan also continued to grow.

 

The political solution for the United States was to give the PRC whatever it wanted, but purely as lip-service. If the PRC wants to claim publicly that there is only one China, fine, as long as it does not interfere with the American business and military relationships with Taiwan. The PRC can call itself “China” for the Olympics but the US and Taiwan will continue their strong relationship, unbroken by the new ties between the US and the PRC.

 

Taiwan would like to shift to a “two China” policy. That, in fact, is the real world for a businessman like Trump. But it is definitely not the political reality. The PRC has emphatically rejected all attempts to even begin a discussion of Taiwan being recognized as a separate country.

 

The problem is that Donald Trump is the most uninformed president the US has ever had. This is not an opinion. It is based on the realities of how human beings communicate. He does not read.

  

Taiwan’s leader Tsai Ing-wen speaking with US President-elect Donald Trump recently

 

Until recently, it has always been faster to send information verbally than by writing. That is why lawyers dictate. Modern technology has allowed the blocking and copying of text, so it is possible, today, to convey facts as quickly by writing as by talking. But the fastest way to receive large amounts of information is still by reading.  We hear faster than we speak and we read enormously faster than we hear. The President has briefing books, which are by no means brief, because that is the only way to get him or her to really know what is going on.

 

A President who does not read is ignorant.  Worse, he is dependent upon what he happens to hear or see on TV or the internet, or what he is told by the few individuals he listens to.

 

So Donald Trump does not know things about China.  He apparently does not know the convoluted history of how we got to where we are today. As a businessman who has a building project in Taiwan and has his ties made on the Mainland, he thinks there are two Chinas. There are not.

 

The PRC has never, and will never, agree to two Chinas. The PRC has made maps of China for more than 60 years. They always include Formosa, as they included Hong Kong and Macau. In fact, when Portugal agreed to turn sovereignty over Macau back to China in 1987, which was not completed until 1999, China refused to sign a treaty. Instead Portugal and China entered into a “Joint Declaration of the Government of the People’s Republic of China and the Government of the Portuguese Republic on the question of Macao.” China insisted that Macau be formally recognized as having always been Chinese territory, temporarily (for about 450 years) under Portuguese administration.

 

Trump obviously does not know or understand why diplomacy is conducted quietly, often secretly, and carefully, over long periods of time. It would rarely, if ever, be appropriate for a country’s leader to make statements by tweets, limited to 144 characters.

 

One of the problems with tweets is there is no subtlety, no way to easily judge what is important and what is just bluster. Trump does not believe in consistency, or even in telling the truth.  Those traits can be useful weapons, when used judiciously, in diplomacy.  But there have to be ways for both your friends and your enemies to know which statements are policy and which are merely transitory reactions.

 

Since 1979 there has been no direct communication between a US leader and the leader of Taiwan.  This is one of those lip-service protocols the PRC insists on.  It has no impact on US-Taiwan business, military or any other relations.  But Trump has already had a telephone call with Taiwanese President Tsai Ing-wen.  Trump and his inner circle had been lobbied by Bob Dole, who received US$140,000 from Taiwan for his work.

 

When the phone call became public, Trump responded with some not well thought out, or even factually accurate, tweets. First, he said, “the President of Taiwan CALLED ME...”  Then, with the criticism continuing, he tweeted, “Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the US doesn’t tax them) or to build a massive military complex in the middle of the South China Sea? I don’t think so!”

 

Trump compounds his impulsive outbursts by not allowing advisors to screen his tweets.  Other presidents knew that every word that comes from a world leader is subjected to great scrutiny. Even a single wrong word could result in war. 

 

With criticism mounting, Trump made the situation worse.  Instead of conducting closed-door diplomacy, as President Obama did to try to sooth China’s anxiety, Trump escalated the controversy by going on Fox News and declaring, “I don’t know why we have to be bound by a ‘One China’ policy unless we make a deal with China having to do with other things, including trade.”

 

Trump seems to not know how serious his insults to China are.  Worse, he does not even know what it means in China to save face. Anyone who knew anything about China would know that the PRC had to retaliate.  To save face, China immediately seized a US Navy submarine drone and announced that it was putting up anti-aircraft guns on the artificial islands it created in the South China Sea it had promised it would not arm.  As a retired Chinese admiral put it, “If Trump and the American government dare to take actions to challenge the bottom line of China’s policy and core interests, we must drop any expectations about him and give him a bloody nose.”

 

But Trump continues to insult China, and worse, the Chinese rulers.  Diplomats with an understanding of face never single out individuals for criticism, especially for public insults and bullying.

 

So far, China has mostly dismissed Trump as being ignorant, childish and foolish. But its patience has been wearing thin, even before Trump took office.

 

China expresses serious concern on this subject,” Chinese Foreign Ministry spokesman Geng Shuang told reporters. “If the [one-China policy] is compromised or interfered with, any sound and steady development in China-US relations and cooperation in various fields is out of the question.”

 

China’s President Xi Jinping and his US counterpart Barrack Obama understood the importance of diplomacy

 

The Global Times, a Chinese state-run newspaper, went further, accusing Trump of being “very childish and impulsive.” It said Trump’s comments wouldn’t be without consequences.

 

China needs to prepare enough ammunition for a roller-coaster ride of the China-US relations with Trump,” it said in an editorial. “There are many other people in the world that also need to buckle up the seat belts.”

 

How will China respond? Short of a shooting war, China is sure to use its enormous economic power. In 2004, the PRC changed its rules to allow Chinese tourists to travel on individual visas. Freed from having to travel in a group, with a restrictive tour leader, Chinese Mainlanders flowed across its borders by the hundreds of millions.

 

Chinese tourism has been great for places like Macau and Las Vegas. But it gives the PRC a powerful weapon.

 

I have taught a post-grad class in Gaming Law at the University of Macau for nine of the last 10 years, starting in 2007.  A few years ago, the PRC, without warning, put restrictions on travel from the Mainland to Macau – residents of the provinces nearest Macau could no longer take daily visits and were only able to enter Macau once every three months. The impact was immediate.  One of my students was in charge of the frequent visitors program for an American-owned casino.  When visa restrictions were imposed from Beijing, she lost her job, because there were no more frequent visitors.

 

 

And it’s not just Macau.  Chinese are now the top tourists in the world.  Chinese tourists spent US$215 billion abroad in 2015 way more than anyone else.

 

Although only a relatively small percentage of casino patrons in Nevada play baccarat, that favorite game of Chinese high-rollers has passed blackjack as the most profitable table game on the Las Vegas Strip.  The numbers are startling. Nevada casinos have a total of 2,704 blackjack tables and only 302 baccarat tables, yet in 2013 Nevada casinos won a total of US$1,093,761,000 from blackjack and US$1,597,443,000 from baccarat. So despite having only one-ninth as many tables, baccarat produced US$500 million more gaming revenue than blackjack. A blackjack table wins US$404,497 on average in a year; a baccarat table US$5,289,546 – 13 times more! 

 

Nevada-licensed casinos actively try to induce Mainland VIPs to try their luck in Las Vegas rather than in Macau, because Nevada’s tax rate on casinos’ winnings is so much lower. Casinos have to pay Macau close to 39% in taxes and fees but less than 7% to Nevada.

 

The PRC has helped fuel the boom in Chinese gamblers to Las Vegas.  The government’s active promotion of private capitalism and state construction projects has created a growing middle class.  The PRC’s easing of travel restrictions has allowed more and more non-wealthy Chinese to travel. 

 

The size of China’s population and the Chinese love for gambling led to this startling headline in the China Daily: 7,000-strong tour group breaks record in US trip.” The eight-day trip required more than 70 flights from the Mainland and the group was expected to fill more than 30 hotels.  Destinations included southern California and, of course, Las Vegas.

 

So today it is not only Macau, but also Las Vegas, that would suffer greatly if the PRC decided, once again, to make it difficult for tourists to leave the Mainland. Restrictions on tourism involving gaming is a natural target for China to retaliate against Trump.  Everyone here and in Asia still associates the Trump name with casinos. He owns a large hotel in Las Vegas. And two of his top supporters, Steve Wynn and Sheldon Adelson, would be severely hurt if Chinese Mainlanders could not gamble in Macau and Las Vegas.

 

I personally think if Trump continues to cause Chinese officials to lose face, the first retaliation will probably be something bigger and more dramatic against US economic interests.  Boeing is America’s largest exporter. One-quarter of its sales are to China. 150,000 Americans would instantly lose their jobs if China cancelled its orders for Boeing’s jets. And Boeing has a nonAmerican competitor which can fill those orders – Airbus.

 

The danger to legal gaming is that Trump never backs down. He openly and consistently revels in revenge.  So now we have a Chinese culture that requires saving face and an insecure, thin-skinned President who believes escalating a conflict is a sign of strength. 

 

For decades, Trump has been an advocate of revenge. And now his revenge fantasies are running wild on a grand stage.

 

After China destroys the American aircraft industry, and Trump retaliates, the PRC  will then probably put restrictions on iPhones and other US-made small electronic devices.  The legal gaming industry is probably third in line.  If we’re not in a shooting war by that time and if, and when, Trump insults them again, China’s rulers will simply change its visa rules to eliminate travel to the US.

 

Before Trump, China was expected to become the third largest source of foreign tourists to the US after Canada and Mexico. Of course, Trump has already scared off tourists from Mexico.  But even without a trade war, China can devastate the economy of Las Vegas.

 

And that’s even without the inevitable stock market crash and recession.

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