Hong Kong should prepare now to weather trade war storm

The reassurance afforded by the city’s deep pockets should be tempered with vigilance and financial prudence

PUBLISHED : Monday, 16 July, 2018, 8:05pm
UPDATED : Monday, 16 July, 2018, 9:36pm

As a free port, Hong Kong needs to be alert to the risk of collateral damage from a trade war between the two biggest economic powers, especially when one is a neighbouring market and our biggest trade partner. It should not be lulled into a false sense of security by the fact that goods affected by the first round of the US$34 billion tit-for-tat salvoes of tariffs exchanged by the United States and China only accounted for 1.4 per cent of the city’s overall trade. We are unlikely to get off so lightly in a massive escalation, flagged by the US announcement last week of a plan to levy 10 per cent tariffs on another US$200 billion worth of Chinese products, and a vow by Beijing to retaliate.

Indeed, Secretary for Commerce and Economic Development Edward Yau Tang-wah has warned that Hong Kong will be hit harder by the next round of tariffs, going by the list of consumer goods that will be affected. And Financial Secretary Paul Chan Mo-po says that while the direct impact on Hong Kong may be small in the short term, the city is more affected indirectly by the pressure on GDP growth, jobs and financial markets across the border, which could impact on the trade and logistics industries that employ about 800,000 people.

How will Hong Kong be affected by the US-China trade war?

While the first round of tariffs largely affected materials such as steel and aluminium, the next includes consumer products such as clothing and shoes, air conditioners and refrigerators, and food.

Smaller firms still solely producing on the mainland are seen as more likely to become casualties of a prolonged trade war because larger ones operating across the border have set up offshore factories, such as in Vietnam. Officials should carry out studies to prepare society for various scenarios including how government revenue and spending might be affected in the short-to-near term. The increasing pile of reserves that Hong Kong has saved for a rainy day is often the subject of debate. Ironically, if wiser heads do not prevail in a trade war in which there can be no winners, it looks like the storm could be coming. It is good to hear Chan say the government will soon put in place funds to ease the financial burden on small and medium-size enterprises. The reassurance afforded by the city’s deep pockets should be tempered with vigilance and financial prudence.