If the markets are any judge, U.S. President Donald Trump’s vow of “meaningful” action to strip some of Hong Kong’s trade privileges has so far proved underwhelming.
Trump’s announcement in the White House’s Rose Garden on Friday didn’t provide any details or timeframe for what would come next, only that it would cover the full range of agreements between the U.S. and Hong Kong with “few exceptions.” U.S. stocks on Friday erased losses and traded little changed, with the S&P 500 Index rising 0.5% at the close in New York. Hong Kong’s Hang Seng Index on Monday saw gains of more than 3%, led by the finance sector.
China Halts Some U.S. Farm Imports, Threatening Trade Deal
Under the U.S.-Hong Kong Policy Act of 1992, the president is empowered to suspend the territory’s special trading privileges at any time through an executive order. The law covers the whole facet of the relationship, from trade to recognizing passports to rules that affect air travel, shipping and investment.
Tariffs
Trump could treat Hong Kong exports with the same tariffs as the mainland. Yet the effect of this may be minimal: The territory exported $4.8 billion last year to the U.S., about 1% of what China shipped over. While Hong Kong is a major transshipment hub for Chinese goods, most of these are already taxed at mainland rates.
Export Controls
The U.S. allows Hong Kong to import certain sensitive goods that are prohibited from China. This includes certain dual-use technology with consumer and military applications, like carbon fiber used to make both golf clubs and missile components.
Sanctions on Banks
U.S. lawmakers are quickly moving ahead with a bill that would penalize banks that do “significant transactions” with Chinese entities involved in suppressing Hong Kong’s freedoms. This could effectively cut those banks off from the U.S. financial system, with measures such as blocking foreign exchange transactions and dealings with American lenders or citizens.
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