Mark Pestronk
Q: At the end of a recent Legal Briefs column on Trump's probable repeal of two Biden initiatives that affect the host-IC relationship, you wrote, "Although my focus here is on the host-IC relationship itself, the broader issues of tariffs, immigration policy, international relations and business and individual taxation could well affect the retail travel business much more profoundly." Can you please elaborate?
A: First, let's cover the upsides for the travel agency business. Making the 2017 tax cuts permanent would give richer Americans more discretionary income, enabling them to travel more.
Similarly, eliminating taxes on Social Security benefits and tips would be a boon for the middle class. The plan to try to lower energy prices by stimulating more supply could benefit everyone, albeit at the expense of the environment.
On the other hand, the announced plans to raise tariffs, deport millions of immigrants, place less importance on international alliances and make the Federal Reserve more subject to the president's supervision may lead to adverse consequences for the economy. The travel business might be especially hard hit.
Chief among those plans is higher tariffs on all goods from abroad. In the short term, imports would become more expensive. The increased cost of goods would also mean that consumers could buy fewer of them, so retailers could be hurt badly. In the long term, other countries would impose matching tariffs, thus hitting U.S. exports especially hard.
One of the biggest exporters is the U.S. high-technology industry. A major downturn in tech would probably bring on a major stock market slump, which would hurt Americans who hold stocks and curtail investment that the airline, cruise and hotel industries depend on.
Trade wars would dampen global economic conditions, reducing overall travel demand. Incoming travel could be especially hurt if foreigners feel unwelcome or visas become harder to obtain.
Mass deportations would hit the hospitality industries particularly hard, leading hotels and restaurants to raise prices to pay for the higher salaries of citizens hired in place of the deportees.
Executive control of the Federal Reserve would probably lead to looser monetary policies with lower interest rates. While that would be good for the housing industry, it would trigger inflation.
Since the end of the pandemic, the driver of profitability has been high-end leisure travel, which pays the most commissions per sale and enables advisors to charge planning fees. However, high-end travel, especially international travel, could suffer from high inflation.
This past summer, the trade press featured several articles about the sky-high prices at luxury hotels in Western Europe. Demand has been fueled by wealthy Americans, but they may not be able to afford to stay there anymore if prices keep going up.
The corporate side has not yet fully recovered from the pandemic. While corporate taxes would go down, leaving more room in the budget for international travel, reduced exports would dampen the demand for business travel.
Whether the benefits of more discretionary income would outweigh the drawbacks of higher inflation and trade wars is anybody's guess.