A general view of the container terminals and a T.S. Lines vessel at Kwai Chung district in Hong Kong, China November 28, 2024. REUTERS/Tyrone Siu
HONG KONG: Donald Trump’s new trade war is further blurring the lines between Hong Kong and Beijing, threatening to erode the city’s main selling point as a global financial hub.
When Trump slapped a 10% levy on China last week, that action for the first time also applied to Hong Kong goods, after the president in 2020 signed an executive order to remove the city’s special privileges.
One day later, the US Postal Service put a ban on incoming Chinese parcels that also swept up the commerce centre, before reversing course hours later.
Half way across the world, the Trump administration is pressuring Panama to cut ties with a private Hong Kong conglomerate – run by a tycoon whose loyalty to Beijing has been questioned – over national security concerns.
Trump has falsely claimed its famed waterway is operated by the Chinese and controlled by its military.
That refusal to distinguish between Hong Kong and mainland China undermines chief executive John Lee’s efforts to rebuild the city’s image as a business hub, after Beijing’s crackdown on dissent – along with strict Covid curbs – fuelled a talent exodus.
‘Concerning trend’
President Xi Jinping has called on the city to retain its unique identity, but the jailing of journalists and pro-democracy lawmakers under a Beijing-drafted security law has narrowed the differences.
“If in more and more policy areas Hong Kong is not differentiated from China, then its international status and role as an international connector will be in question,” said Dongshu Liu, an assistant professor at the City University of Hong Kong. “That is a concerning trend.”
Economists generally expect Trump’s tariffs on Hong Kong products to do little damage to the economy as they apply to goods manufactured in the city, rather than so-called re-exports that make up the bulk of its trade.
Domestic exports – mostly jewellery, gold and metals – accounted for just 1.3% of total shipments last year, with only a fraction going to the United States. The city’s re-exports of Chinese goods to the United States made up 3.3% of total exports last year.
But for companies based in the hub, US tariffs and actions targeting both jurisdictions alike underscore fresh geopolitical risks of operating in the enclave that once kept great power rivalry in the background.
The Hong Kong government in a statement last Friday condemned the US tariffs and said it would file a complaint with the World Trade Organization (WTO), calling Trump’s moves “unreasonable measures” that ignore the city’s status as a separate customs territory. Authorities didn’t provide further comments in response to Bloomberg’s questions.
Risks loom beyond the trade war. City judges in the coming months are set to deliver a verdict on the national security case of ex-media mogul Jimmy Lai, with the septuagenarian facing life in prison under the Beijing-imposed national security law.
A conviction would likely drive another wedge between China and the United States, and put the city at risk of retaliation.
Trump has called for releasing Lai, and installed as secretary of state China hawk Marco Rubio, whom Beijing in 2020 sanctioned for behaving “egregiously” over Hong Kong after he criticised the Communist Party’s crackdown on pro-democracy activists in the city.
“There’s no way we can just free him,” lawmaker Regina Ip, who is also convener of Lee’s Cabinet, said of Trump’s campaign comments on Lai.
Hong Kong should do more to emphasise its differences from China, she added, while questioning Rubio’s understanding of the city.
“He’s hawkish on Communist China, but Hong Kong is different,” she said. “I don’t think how ‘one country, two systems’ works has ever been explained to him properly,” she added, referring to the framework that guaranteed the city a high degree of autonomy after it returned to Chinese rule.
Hong Kong got a taste of Trump’s approach in his first term. Back then, the Republican said the national security law – which China imposed about six months before Trump left office – would lead to the process of eliminating exemptions for Hong Kong.
As Beijing prepared that legislation, the US limited the export of sensitive technologies to the city, subjecting it to the same dual-use export controls as mainland China. Weeks later, Trump signed the order to normalise Hong Kong’s status, calling that a response to China’s denial of freedoms to the city’s residents.
The directive sought to unwind Washington’s special treatment of Hong Kong as a separate territory in economic and trade matters.
WTO support
It required Hong Kong’s products to be labelled as “Made in China”, although the WTO later backed the city’s challenge of the demand.
These changes add to the perception that Hong Kong is slowly becoming just like a mainland city despite retaining its own legal system, a separate currency and access to a free Internet.
Trump’s conflation of Hong Kong and China is “consistent with the re-orientation of both the government and the business community in the United States” after the security law, said Victor Shih, a professor of political science at the University of California San Diego.
“When the legal structure changes in this dramatic fashion, it is reasonable for people to conclude that the legal regimes in the mainland China and in Hong Kong have converged,” he added.
For Hong Kong’s business sector, the pressure on CK Hutchison Holdings Ltd in Panama shows companies with overseas infrastructure may face political scrutiny in regions where the United States is vying for influence.
That could deter firms from investments abroad, especially in strategic assets.
Hong Kong officials are trying to encourage companies to look to the Middle East, where China has good relations. — Bloomberg
