Alongside the decision to end the special trading relationship Tuesday, Trump also signed a separate piece of legislation that would impose sanctions on businesses and individuals that are seen as helping China restrict Hong Kong’s autonomy.
Without its privilege as a special economy under US law, “there won’t be big differences between Hong Kong and other big Chinese cities like Beijing and Shanghai,” said Simon Lee, senior lecturer of international business at the Chinese University of Hong Kong. “Foreign companies will think whether they need to maintain their existing scale of operations in Hong Kong.”
In a statement, the Chinese Foreign Ministry called on Washington to “stop interfering in any way in China’s internal affairs, including Hong Kong affairs.” It also urged the Trump administration to refrain from implementing its new law regarding Hong Kong.
The impact on trade
Since 1992, Hong Kong’s special status has allowed the goods passing through its borders to undergo different controls than those in the mainland. During the US-China trade war, for example, it allowed Hong Kong to avoid the tariffs that Washington imposed on Chinese goods.
The new executive order could put an end to that, as it aims to “revoke license exceptions” for exports to Hong Kong.
And the majority of goods exported from Hong Kong — about 99% — are re-exports, meaning that they are goods passing through the territory from another country, Pang explained.
That means that if those goods are from mainland China, they are already subject to any tariff that applies to Chinese goods. So “in terms of tariffs, there should be no difference whether there is a removal of the special status,” Pang wrote in a May research report.
What’s more concerning is the overall deteriorating relationship between the United States and China, she told CNN Business.
“I’m not interested right now in talking to China,” Trump said. “They hit us with the plague, so right now I’m not interested in talking to China about another deal.”
The prospect of a “second wave” in the trade war would be far more damaging to Hong Kong’s economy than the new US edict on the city, said Pang.
A blow to business confidence
Trade is only one part of the story.
In recent months, tensions have been bubbling up between China and the West, turning Hong Kong into a political battleground and raising even more questions about the city’s future.
One respondent wrote that the legislation was “extremely broad and could be used for anything at all.” Authorities in Hong Kong, though, insist the law is needed to restore stability after months of unrest.
“Hong Kong is just a city in the gap between the political conflict between the two large superpowers,” George Leung, CEO of the Hong Kong General Chamber of Commerce, told CNN Business. “We are just an international business city here doing business between the East and West, and should not be suffering from the threat of sanctions on anything affecting the Hong Kong wellbeing.”
More serious consequences also appear to have been discussed.
While the Trump administration has not pursued the “nuclear option” of targeting the Hong Kong dollar, the city’s international relevance “would immediately be called into question” if that were to occur, said Brock Silvers, chief investment officer for Hong Kong-based Adamas Asset Management.
“The role of Hong Kong was already evolving in light of its newly redefined relationship with China,” Silvers said. “Although Hong Kong’s international role could diminish over time if concerned firms relocate to Singapore and elsewhere, Hong Kong may find new relevance as a center for Chinese finance.”
— Eric Cheung, Kevin Liptak, Kristie Lu Stout, Jason Hoffman and Sugam Pokharel contributed to this report.