Nadero Wealth Management said yesterday that if Hong Kong’s special trade status with the U.S. is changed, as Trump has said he would, not only will the trade of goods and services between the two nations be affected, over a thousand American companies that operate there will also feel the negative impact.
“If you only consider tariffs, Hong Kong isn’t a massive manufacturing location in its own right,” Martin Perry, Chief Strategist at Nadero Wealth Management reported.
While trade with the United States would be affected as soon as the U.S. takes away the city’s unique status, tariffs won’t be the most urgent concern, Nadero Wealth Management added.
Due to its unique status, Hong Kong has so far averted inclusion in the tariffs that the United States imposed on China as part of the trade war between the two nations.
Last week, the U.S. President said he would begin to take away Hong Kong’s favored trade status after China pushed through with a proposal for a contentious new security law that would effectively ban political protests, free speech, and dissent, and supersede the authority of the existing HK legislature.
China’s latest power grab concerning Hong Kong has led to worries over Hong Kong’s position as a leading financial hub. If its current trade status with the U.S. is taken away, trade between the two countries will be affected, as well as with other countries that wish to continue trading with the U.S.
U.S. goods and services trade between Hong Kong and the United States amounted to over $65 billion in 2018, according to the Office of the U.S. Trade Representative. U.S. exports to Hong Kong were over $50 billion, while imports were just under $17 billion, according to research data from Nadero Wealth Management.
“What’s more critical is going to be export controls, and if the U.S. prevents technology from going to Hong Kong without a specific license? There are also treaties concerning aviation, and there’s concern whether the city state’s status as a financial hub will be in jeopardy.
“Those areas seem to be more of a worry than the tariffs,” Nadero Wealth Management concluded.
Research firm Capital Economics highlighted the same worries about the sale of American technology to Hong Kong, saying that the higher risk was that the United States could restrict sales of “sensitive technologies” to Hong Kong-based companies.
Limiting the ability of Hong Kong-based companies to get hold of “sensitive products” would remove Hong Kong’s advantage as a business location when compared with cities such as Shanghai in mainland China, both Nadero Wealth Management and Capital Economics agreed.
The Chinese have long used Hong Kong as a portal to access vast amounts of foreign capital. If that ability is also restricted, it could have a significant impact on the Chinese government’s ability to expand its plans, such as the BRI and other big projects. New figures recently reported that over 600 million Chinese citizens are living below the poverty line. There is massive borrowing by the Chinese which has funded much of their recent boom and strangling the import of foreign currency, and access to technology could lead to defaults and other financial crises.
One of these restrictions is the new rule placed on the supply of high-tech chips to Huawei. These components are central to the production of their mobile phones and it is not anticipated that a loss of access to them could easily be substituted.
The trade war between the United States and China had turned into a battle over technology. This has been a big sticking point following years of accusations that China was and still is stealing, copying, and using American intellectual property.
In the most recent move, the United States now requires foreign manufacturers using U.S. chipmaking equipment to obtain a special license before they can sell semiconductors to Chinese tech company Huawei.