US’ perverse bullying of Hong Kong on trade will prove counterproductive
- Hong Kong should explore World Trade Organisation action in response to US revoking special trading status as a matter of principle
- Donald Trump has railed against US trade deficits, but its highest goods trade surplus in 2018 was with Hong Kong
Last week, US President Donald Trump determined – in an executive order on so-called Hong Kong Normalisation – that the Special Administrative Region (SAR) is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China under various American laws.
Lurking at the bottom of a list of laws is the innocuous sounding “section 1304 of title 19, United States Code”. No details are provided.
This seemingly obscure provision in fact ends Hong Kong’s status as a separate entity for country of origin marking purposes.
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Hong Kong is no longer autonomous from China, US determines
In the trade sphere, there are three criticisms that might be made.
Second, it is perverse and hypocritical. How can anyone believe the US’ pious homilies about the need for more market-oriented conditions in the world trading system when they then whack an open trading economy like Hong Kong? Hong Kong came top of the Heritage Foundation’s Index of Economic Freedom for 25 years running between 1995 and 2019, and was second in 2020.
Third, and perhaps most importantly, it is counterproductive. It brings about the very situation that the US claims it wants to avoid – namely, conflation of Hong Kong trade policy with that of the mainland, leading to further erosion of the SAR’s autonomy.
According to the executive order, “the situation with respect to Hong Kong” constitutes an unusual and extraordinary “threat”, requiring the declaration of a “national emergency”. The additional customs duties will be justified by the US under the General Agreement on Tariffs and Trade’s (GATT) exception for measures to protect essential security interests, taken during an emergency in international relations.
Quite how normal trade with Hong Kong under the GATT’s “most favoured nation” clause on non-discrimination threatens the US is baffling. We all know how much emphasis the current US administration places on trade balances. In 2018 the US enjoyed a surplus of US$31 billion in its goods trade with Hong Kong – its highest surplus with any economy in the world.
The SAR government’s response remains to be seen. Retaliation against imports from the US may be tempting but seems unlikely given Hong Kong’s long attachment to free trade. The US knows that, which makes its action look even more like a cheap shot.
Another option – after the deed has been done – would be to take the first steps towards formal dispute settlement proceedings in the WTO.
Hong Kong’s trading status with the US is often characterised, even in Hong Kong, as “special” or a “privilege”. That may be the view from Washington but there’s no need for people in the SAR to be so subservient.