Source:
https://scmp.com/comment/opinion/article/3087890/how-hard-can-donald-trump-hit-hong-kong-over-national-security-law
Comment/ Opinion

How hard can Donald Trump hit Hong Kong over the national security law? Not very

  • Even if the US levies a 25 per cent tariff on Hong Kong’s exports, that would affect only 0.1 per cent of GDP
  • Imposing sanctions on Hong Kong and Chinese officials is easier said than done
A Donald Trump impersonator gestures along with hundreds of people who gathered at Chater Garden on December 1 to thank the US president for signing the Hong Kong Human Rights and Democracy Act. The law allows Washington to suspend Hong Kong’s special trading status based on an annual certification by the US State Department about whether the city retains a sufficient degree of autonomy under the “one country, two systems” framework. Photo: Winson Wong

We have often read over the past two weeks how the US plans to revoke Hong Kong’s privileged trade status to punish China for imposing a national security law on the special administrative region.

This is in line with the US habit of using trade measures of one kind or another as punishment or protest against economies inciting its displeasure. But this threat raises a simple question: what are the trade “privileges” that will be revoked, and what will the impact be of this?

US President Donald Trump called on his administration to begin the process of revoking Hong Kong’s special treatment as a separate customs and travel territory from the rest of China, as has been set out in the US’ 1992 Hong Kong Policy Act. Trump also said the US would “sanction [Chinese] and Hong Kong officials directly or indirectly involved in eroding Hong Kong’s autonomy”.

Secretary of State Mike Pompeo had earlier said this was necessary because Hong Kong’s high degree of autonomy had been undermined.

Hong Kong and the US: how much do they rely on each other economically?

06:21

Hong Kong and the US: how much do they rely on each other economically?

Although Beijing has yet to provide details of its proposed law and how it might be implemented, and Trump has provided neither detail nor a timetable for his measures against Hong Kong, let’s try to work out what exactly is being threatened.

Eamon Barrett at Fortune made a masterful effort last week. Sanctions might fall into four areas: tariffs, refusal to accept the Hong Kong dollar, restricted access to sensitive technology, and sanctions against Hong Kong and mainland officials.

But in all of these areas, the measures have a distinctly pyrrhic feel. On the face of it, trade leverage would seem the most meaningful. After all, Hong Kong exports to the US amounted to about US$45 billion last year, so 25 per cent tariffs similar to those imposed on Chinese exports during the past two years of trade war could be substantial.

The problem is that around 95 per cent of these exports originate from other economies, and only about 1 per cent are actually produced in Hong Kong. That would expose Hong Kong to tariffs on about US$450 million of exports, or less than 0.1 per cent of output in an economy that is more focused on services than manufacturing. Whose cage is this likely to rattle? 

A US refusal to accept the Hong Kong dollar seems unrealistic, unless the US were at the same time to refuse to exchange the Chinese renminbi – and while US trade measures against China have created inconvenience and disruption, none have gone so far as to threaten currency wars. Even Barrett at Fortune acknowledges this would be a “nuclear option” with implications that would be global rather than on just Hong Kong.

Restrictions on the export of sensitive or dual use technologies to Hong Kong could inhibit Hong Kong’s progress as a technology and innovation hub, but let’s be honest – despite the earnest efforts of our secretary for innovation and the Science Park, Hong Kong is hardly a world leader here. The kinds of technologies that might be restricted would be minimal and at the margins of the economy.

Efforts to impose sanctions against Hong Kong and mainland officials would quickly collapse into the comical, especially if it were necessary to demonstrate they had been involved in eroding Hong Kong’s autonomy.

Would we be including seizure of assets of pro-Beijing legislators who vote in support of the security bill? Or banning of Chief Executive Carrie Lam Cheng Yuet-ngor from visiting the US? Why not include Chinese President Xi Jinping or Jack Ma, founder of Alibaba, which owns the Post, at the same time? Maybe this is the crazy place the Trump administration is pushing the world towards.

At the Washington-based Peterson Institute, China expert Nick Lardy also examined the possible impact of the withdrawal of trade privileges and concluded that “Trump’s latest move on Hong Kong is bluster” and “the impact on Hong Kong would be minimal and on China even less”.

US efforts to revoke Hong Kong’s status as an independent trade and customs territory would also be problematic, and would be forcefully challenged by Hong Kong’s administration. Hong Kong has been a member of the World Trade Organisation in its own right from its formation and has protected this independent WTO status as fiercely as it has its local autonomies under “one country, two systems”. So it is neither for the US, nor China for that matter, to revoke this independent status.

Stuart Harbinson, who represented Hong Kong in the WTO for eight years, is clear: “Hong Kong does not have, and never has had, an overarching preferential trade agreement with the US.”

But he identifies some other complications arising from the threatened US sanctions: containers from Hong Kong’s port have speedy “trusted” clearance into the US and the city also works with the US on initiatives against terrorism and money laundering. But banishing Hong Kong from these deals could hurt the US itself more than anyone else.

Containers are stacked up at the Hong Kong Container Terminal in the Kwai Chung-Tsing Yi basin on May 17, 2019. Hong Kong’s exports to the US amounted to about US$45 billion last year. Photo: Roy Issa
Containers are stacked up at the Hong Kong Container Terminal in the Kwai Chung-Tsing Yi basin on May 17, 2019. Hong Kong’s exports to the US amounted to about US$45 billion last year. Photo: Roy Issa

Harbinson says it is clear that if the US were unilaterally to challenge Hong Kong’s independent status in the WTO, the city could choose to contest this through the WTO’s dispute settlement process.

But the US’ blocking of the appointment of new judges to the WTO’s Appellate Body has stymied the appeal process. So, in practice, any Hong Kong appeal would drop indefinitely into a vacuum.

Perhaps we need to turn to Shakespeare’s Macbeth to understand the fundamentally theatrical substance of this Trumpian gesture: “It is a tale told by an idiot, full of sound and fury, signifying nothing.”

There may be some substance in the threat of US sanctions, but compared with the massive material challenges arising from the global pandemic, the US-China trade war and the Hong Kong government’s own failure to address the city’s internal problems, the threat of US sanctions really does ring hollow.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view