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

As the world’s two biggest economies face off with tit-for-tat tariffs, the city which has for years been a re-export hub between the pair will inevitably feel the squeeze

PUBLISHED : Monday, 16 July, 2018, 9:00am
UPDATED : Monday, 16 July, 2018, 2:42pm

Since the world’s two biggest economic powers crossed swords over bilateral trade a week ago, the row has escalated and Hong Kong sees a chunk of its economy hanging in the balance.

From steel and aluminium to fashion, food and fruit, the United States has imposed tariffs on a total of US$250 billion worth of Chinese goods, some effective from July 6, others still pending.

When the first wave of America’s 25 per cent tariffs on US$34 billion worth of Chinese goods took effect, China in return imposed tariffs on the same amount of American goods. As the world digested the news, US President Donald Trump upped the ante last Tuesday by revealing a planned 10 per cent levy on US$200 billion worth of Chinese goods, pending congressional approval, with a hearing set for late August.

Hong Kong, which has served as the re-export hub between the two nations for decades, and whose biggest trade partner is China, is inevitably sandwiched between the two sides.

Hong Kong is a part of China. So is it ensnared in the trade war?

Technically, Hong Kong is to be shielded by a US deal, called the United States-Hong Kong Policy Act, which means the country has treated the city separately from China in terms of trade export and economics since the return of its sovereignty from Britain to China in 1997. So the tariffs the US slapped on China do not apply to Hong Kong.

But “Hong Kong as a middleman will definitely be affected by the trade war, which is a matter of magnitude”, said Baptist University economist Dr Billy Mak Sui-choi.

China tells journalists: don’t mention the trade war

And Hong Kong’s status as a founding member of World Trade Organisation (WTO), the intergovernmental body that has regulated global trade since 1995, does not offer much help, Mak said.

“Trump did not follow any rules of the game at all in the trade spat with China,” he said. “Even if Hong Kong complains to the WTO, by the time it completes an investigation or yields any findings, the damage will have been done.”

What is the impact on businesses and people?

Based on the list of the US$34 billion worth of Chinese products, the Hong Kong government said about 17 per cent – or HK$60 billion (US$7.6 billion) worth – of Chinese exports in question passed through the city to the US, and about 9 per cent – HK$6 billion – of US exports came via the city on the way to mainland China. The exports in question accounted for 1.4 per cent of Hong Kong’s overall trade.


Secretary for Commerce and Economic Development Edward Yau Tang-wah said the city’s traders would be “the first to bear the brunt” of the trade war, and the latest round of tariffs that the US imposed on US$200 billion worth of Chinese goods would “hit Hong Kong harder”.

“The 25 per cent tariffs will substantially jack up the cost of business. Whether the extra costs will be shouldered by the exporter or importers is too early to say, but ultimately it will be shouldered by consumers,” he said. “The trade war is not without a price.”

US-China trade war a ‘dark cloud’ over Hong Kong economic growth

Bank of East Asia chief economist Paul Tang Sai-on said Hong Kong’s financial markets instantly felt the pinch of the trade war, which sent the local stock market on a roller-coaster ride and soured investor sentiment. The Hang Seng benchmark index risked sinking below the supporting level of 28,000 in the past nine trading days, before drifting 20 points higher than July 3, to close at 28,525 points on Friday.

“Trump’s trade strategy on China is so unpredictable that it creates distress in the financial market, which is likely to continue to haunt it in the second half of this year,” Tang said.

Mak pointed out that the unfolding trade war would put pressure on job security in Hong Kong, with one in every five employees working in the trade industry or related sectors.

Who will be the biggest casualties? 

Hong Kong companies which operate across the border and in the re-export and transshipment business stand to be hardest hit.

Can they seek redress?

In the short term, the Export Credit Insurance Corporation helped with extra coverage for exporters, while some government funds would be made available for smaller firms to ease their financing needs if banks tighten lending requirements, Yau said. He encouraged Hong Kong companies to branch into new markets and diversify manufacturing geographically.

He said markets in the 10-nation trade bloc Asean were a viable way out. The bloc – the Association of Southeast Asian Nations – has a free-trade agreement with Hong Kong. It consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, and is the city’s second-largest trade partner after China.

Will American and Chinese goods be more expensive for Hong Kong consumers?

Any price inflation in consumer goods would depend on how mainland exporters deal with their extra costs, as Hong Kong relies heavily on imports of food and daily necessities from across the border, Mak said.