What way out for Hong Kong in US-China trade war?

Compared to 20 years ago, city has limited role to play in easing economic tensions between two superpowers

PUBLISHED : Sunday, 08 April, 2018, 1:34pm
UPDATED : Sunday, 08 April, 2018, 9:09pm

“A fire at the city gates means calamity for the fish in the moat,” a well-known Chinese saying goes. It applies aptly to Hong Kong, which is at risk of collateral damage as Beijing and Washington exchange “fire” with tit-for-tat trade tariffs.

Understandably, government departments looking after the city’s finance and trade are busy assessing the impact, direct or indirect. Finance chief Paul Chan Mo-po earlier expressed concern that, as a “highly open and small economy”, Hong Kong might end up seeing one out of five jobs affected, as those employed in the city’s trade and logistics industries would be hit, not to mention the volatility a trade war would cause in the financial market.

Trade minister Edward Yau Tang-wah has held several rounds of talks with major business groups, including the American Chamber of Commerce, as well as top US envoy to Hong Kong Kurt Tong, trying hard to head off or minimise any negative consequences.

Although the general sentiment seems to be that the direct impact on Hong Kong will not be huge – at least not yet – it raises one practical issue: can Hong Kong, an independent member of the World Trade Organisation (WTO), be treated separately from mainland China in this latest round of highly politicised tariff retaliation?

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Not really, although that appears to be the government’s hope. It further prompts another question: can Hong Kong convince the United States that the collateral damage to a city under “one country, two systems” will also hurt the interests of the many American businesses here?

Looking back at history helps to reflect on Hong Kong’s role.

As an independent economic entity, the city joined the WTO, or GATT (General Agreement on Tariffs and Trade) before the change of its name, while still under British rule and long before mainland China was granted its hard-earned membership in 2001.

Armed with this special status after the 1997 handover, Hong Kong has been helping Beijing lobby for support for fairer trade treatment, especially in convincing the US about the renewal of China’s Most-Favoured-Nation status, later renamed Permanent Normal Trade Relations during then president Bill Clinton’s administration.

Tung Chee-hwa, Hong Kong’s first chief executive, used his family and personal connections in Washington then to convince the US about the pros and cons, as well as its own interests in the city. Beijing greatly appreciated Tung’s efforts.

With Washington’s decision earlier to impose punitive tariffs on Hong Kong-made aluminium products, Yau identified three areas that would hit the city the hardest: entrepot trade, investment in made-in-China products and the financial market.

Industrial sources are talking about transferring investment to Southeast Asian countries, where costs are also lower, to avoid future unpredictability in China-US trade relations.

Compared with about 20 years ago, when Beijing did not have much bargaining power in gaining international – especially American – recognition for its reform efforts and equal treatment in the global trade market, Yau has a point that Hong Kong now has a limited role to play in easing the trade tension between these two world powers.

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Now comes the reality: with both mainland China and the US being the city’s “closest trading partners”, is shifting to less-developed Asian countries a way out to avoid future “fires” that could hurt Hong Kong, the “fish”?

Unlikely, is the answer. Hong Kong still needs to make both sides better realise its significance, if we believe we still have it. And that is, the city can help show Washington the upside of smooth bilateral trade relations, while US businesses can always enjoy a free and friendly environment here.