The One Major Downside to a Strong U.S. Dollar

Justin Sullivan/Getty Images

Justin Sullivan/Getty Images

Tourism in the United States had a banner year in 2013, though it may be the last one for quite a while. Throughout the year, America welcomed 70 million tourists, a record number. According to the United States Department of Commerce, spending by international tourists to the U.S. totaled nearly $15 billion in April of that year, an increase of more than 5% over 2012. And tourists in 2013 spent more than they had previously, too. “Purchases of travel and tourism-related goods and services by international visitors traveling to the United States totaled $11.2 billion during April,” the department stated.

The 2013 record is particularly impressive because the U.S. has long been a popular tourist destination among international travelers. According to the World Tourism Organization, the U.S. is the second most popular tourist destination in the world, trailing only that most romantic of European destinations, France.

But the tourism boost that the U.S. has been experiencing for the past few years may be coming to an end, experts warn. With the dollar on the rise, more and more international tourists coming to the U.S. are re-thinking their planned visits or canceling their itinerary altogether. Instead, the strengthening dollar has been a huge boon to American tourists looking to go abroad as more and more Americans begin venturing to typically (and sometimes prohibitively) expensive overseas destinations, such as Europe.

While Americans are celebrating their overseas vacations, international visitors are more likely to stay home: 2014 saw the first of what experts predict will be a downward slump in tourism from international travelers in the next few years, noting that the trend is likely to become more pronounced going into 2016.

Kurt Weinsheimer, vice president of development at traveler marketing platform Sojern, says that between December 2014 and April 2015, “Europeans still searched for travel to the U.S. at about the same rates, but 4 percent fewer actually booked their trips in December vis-a-vis April,” per NBC news.

So why is this so concerning? Tourism, despite being thought of as a somewhat frivolous, luxury sector of the economy, is critically important. After all, tourism worldwide accounts for about 9% of GDP. Further, it’s one of the fastest growing sectors in the world, and according to the World Tourism Organization, “the business volume of tourism equals or even surpasses that of oil exports, food products, or automobiles.”

It can be hard to appreciate any potentially negative consequences of a strong dollar when, from your perspective, it’s both buying you more and getting you further on the international market. However, it’s true that a strong dollar does actually negatively affect certain industries, such as manufacturing, as well as segments of the entertainment, leisure, retail, and dining industries which cater to tourists, and whose livelihood often depends on them.

Jeremy Merrin, a restaurant owner in New York’s perennially popular tourist mecca, Times Square, says the decline in tourism hasn’t been great for him. With things in Europe “not going well,” he says, he’s seen business drop, according to Reuters. Other popular tourist destinations, such as the world famous Tiffany’s jewelry store in New York, have echoed Merrin’s sentiment and have experienced more significant shifts in revenue from foreigners. As much as 40% of the jeweler’s customers at the Fifth Avenue store are from other countries.

“Tiffany is the first poster child of this issue,” noted Craig Johnson, president of the consulting firm Customer Growth Partners. “A lot of retailers might be hit to some degree,” he added, per Reuters. According to Tiffany’s, the slide began in 2014, and sales continued to slide throughout the year; the company also warned investors that the strong U.S. dollar would taint its 2015 results.

The good news is that while international tourism to the U.S. is predicted to trend downward for several years, it’s happening pretty slowly. At this point, many international tourists aren’t choosing to go elsewhere so much as re-evaluating their plans for traveling to the U.S., and becoming more budget-conscious.

The budget-conscious mindset is one the hospitality industry is already responding to by promoting “value packages” to help lure tourists, despite the dollar’s appreciation. Further, because the price of consumer goods and services is still lower in the U.S. than in many other places, for many tourists, it’s still quite an affordable destination.

David Huether, senior vice president of the U.S. Travel Association says that “it’s way too early to panic,” about the decline in tourism to the U.S. Huether adds that a major impact on tourism isn’t likely to be felt until 2016 or beyond, because “the effects of the strengthening dollar on travel tend to be delayed.”

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