Will Trump Accidentally Destroy Las Vegas?

Details

Published: 12 January 2017

© Copyright 2017, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.  To be published in Gaming Law Review and Economics, Vol. 21, No. 1 at pp.  (January/February 2017).

         

Gambling and the Law®:

Will Trump Accidentally Destroy Las Vegas?

          President Donald J. 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 Peoples 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 Peoples 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 Kinmen (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 U.S. had treaties with the ROC.  Did this require the U.S. 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 U.S. election for president.

          At the time, the U.S. only recognized the ROC as the government of all of China.  Both candidates, Vice-President Richard M. 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 Richard M. Nixon may have been anti-Communist, 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, on April 6, while visiting Japan for the 31st World Table Tennis Championships, the U.S. Table Tennis team received an invitation to visit China.

          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.

          By the way, Nixon did say, “This is a great wall.”  But the entire quote shows it was pre-planned: “'When one stands there and sees the wall going to the peak of this mountain and realizes that it runs for hundreds of miles - as a matter of fact, thousands of miles - over the mountains and through the valleys of this country [ and ] that it was built over 2,000 years ago, I think that you would have to conclude that this is a great wall and that it had to be built by a great people.”[1]

          On the other hand, Star Trek’s Mr. Spock did also say that there is “an old Vulcan proverb,” “Only Nixon could go to China.”[2]

          The opening of China had enormous ramifications for every part of the world, including, of course, economic, political and military ramifications for the U.S. 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, etc.  But the U.S. and Taiwan will continue their strong relationship, unbroken by the new ties between the U.S. 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 U.S. has ever had.  This is not an opinion.  It is based on the realities of how human beings communicate:  He does not read.[3]  “[Trump] said in a series of interviews that he does not need to read extensively because he reaches the right decisions “with very little knowledge other than the knowledge I [already] had, plus the words ‘common sense,’ because I have a lot of common sense and I have a lot of business ability.”[4]

          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.  But 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 T.V. or the unedited 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 of 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 U.S. leader and the leader of Taiwan.  This is one of those lip-service protocols the PRC insists on.  It has no impact on U.S. - Taiwan business, military or any other relations.  But president-elect Trump made a telephone call with Taiwanese President Tsai Ing-wen.  Trump and his inner circle had been lobbied by Bob Dole, who received $140,000 from Taiwan for his work.[5]

          Trump has problems with criticism.  So, when the phone call became public, Trump responded with some not well thought out, or even factually accurate, tweets.  First, he said the “the President of Taiwan CALLED ME...”  Then, with the criticism continuing, he tweeted, “Did China ask us if it was O.K. to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the U.S. 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.  The State Department, for example, would never have allowed a president to refer to the ruler of Taiwan as the “president;” Trump did not know that as a matter of protocol, she is only referred to as the “leader” of Taiwan.[6]  And people with actual knowledge would not have permitted a president to state that “the U.S. doesn't tax them” [Chinese imports into the U.S.] when the U.S. does, in fact, impose tariffs on Chinese products.[7]

          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.”[8]

          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.[9]  “Making someone lose face can sometimes insult someone so deeply to create an enemy for life.  Indeed, revenge is very much part of the equation—and not just on Chinese soap operas, which include a heavy dose of avenging face-losing situations.  I think it’s safe to say that throughout China’s long history, face has started many unnecessary conflicts.”[10]

          Anyone who knew anything about China would know that the PRC had to retaliate.  To save face, China immediately seized a U.S. 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 real 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.”[11]

          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.

          Trump has surrounded himself with business executives like himself; virtually none of his advisors or proposed cabinet members have any experience with government, let alone international diplomacy.  But businessmen are primarily concerned with profits and their thinking is limited to months or years.  Governments, on the other hand, don’t particularly care about money, except as it relates to issues like power and the welfare of their citizens.  And countries think in terms of decades.  China, for example, had little problem giving the United Kingdom and Portugal everything they requested for the return of Hong Kong and Macau, respectively, so long as it was clear the two territories, now Special Administrative Regions, would become mere provinces of China after 50 years.

          The danger of treating countries like the United States and China as businesses was shown dramatically by the comments made by Rex Tillerson during his confirmation hearing to become Secretary of State.  China claims vast parts of the South China Sea are its territory, as do Vietnam and other countries.  China is now building artificial islands out of half-submerged reefs in the contested areas.  When asked about those islands, he declared before a worldwide audience, “We're going to have to send China a clear signal that, first, the island-building stops. And second, your access to those islands also is not going to be allowed.”[12]

          This might make sense and even work if this were only two companies competing over business.  Tillerson, as chief executive of Exxon Mobil (he has never worked anywhere else), signed an agreement with Vietnam in 2009 to drill for oil and gas in the contested areas.  The South China Sea is estimated to contain 11 billion barrels of oil and 190 trillion cubic feet of natural gas.

          But China saw Tillerson’s comments as a threat that the U.S. would use military force to block it from having access to islands it considers its territory.  “‘If Tillerson tries to fulfill that promise, there will be a war with China,’” said Hugh White, professor of strategic studies at the Australian National University, in an interview with the Australian Financial Review. ‘Some would see this as a statement of strength and assertiveness, I would see it as one of ignorance and irresponsibility.’”[13]

          So far, China has mostly dismissed Trump as being ignorant, childish and foolish.[14]  But its patience is wearing thin, even before Trump takes 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-U.S. relations and cooperation in various fields is out of the question."

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-U.S. 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."

The newspaper said that "China needs to start a resolute battle with" Trump, adding that "China and other powers in the world are not going to be bullied."[15]

          How will China respond?  The PRC has already “warned that it will go to war to prevent a formal separation” between Taiwan and the Mainland.”[16]

          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 ten 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; they 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 $215 billion abroad in 2015, “way more than anyone else.”[17]

          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.  In 2013, Nevada casinos won a total of $1,093,761,000 from blackjack, and $1,597,443,000 from baccarat.[18]  So, despite having only one-ninth as many tables, baccarat produced fifty percent more gaming revenue than blackjack – half a billion dollars more.  A blackjack table wins $404,497 on average in a year; a baccarat table $5,289,546 – 13 times as much.  And the yield from baccarat was increasing, until the PRC’s recent anti-corruption campaign.  In December 2013, Nevada casinos won three times as much from baccarat as from blackjack: $242,993,000 from only 328 baccarat tables, an increase of 28% from the year before, versus only $82,132,000 from 2,695 blackjack tables, a decrease of 13%.[19]

          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.[20] Casinos have to pay Macau close to 39% in taxes and fees, and less than 7% to Nevada.  If the high-roller is a client of a junket operator, as is almost always the case with Macau VIPs, the casino gets to keep even less.  PRC high-rollers prefer gambling in Nevada, because it is even more difficult for the Mainland government to keep track of financial transactions.  The exodus to Las Vegas grew after Macau officials charged some local lenders with money laundering.[21]

          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.”[22]  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, or to travel to the U.S., or even just to Nevada.

          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 U.S. economic interests.  Boeing is America’s largest exporter.[23]  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.[24]  And Boeing has a non-American 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. 

If somebody hits you, you've got to hit 'em back five times harder than they ever thought possible. . .  It's not so much for the person, which does make you feel good, to be honest with you, I've done it many times. But other people watch and you know they say, "Well, let's leave Trump alone," . . . I say it, and it's so important. You have to, you have to hit back. You have to hit back.[25]

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. . .  Iranian sailors make rude gestures at US vessels? He will shoot them "out of the water." His favorite form of revenge is escalation—upping the ante, screwing 'em more than they screwed you.[26]

          After China destroys the American aircraft industry, and Trump retaliates, the PRC  will then probably put restrictions on iPhones and other U.S.-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 U.S.

          Before Trump, China was expected to become the third largest source of foreign tourists to the U.S., after Canada and Mexico.[27]  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.

                                                               END

© Copyright 2017.  Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law and is a consultant and expert witness for governments and industry.  His latest books, Gaming Law in a Nutshell, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.