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Hong Kong as Top Asian Business Hub at Risk

Trade activities between Hong Kong and the U.S. will lessen significantly if Washington goes ahead and revokes Hong Kong’s special trade status, says former White House trade expert, Clete Willems.

U.S. President Donald Trump threatened last week to withdrawal U.S. special trade relations with Hong Kong after China approved the implementation of the controversial Security and Legislation Law on Hong Kong.

The Security law suppresses political protests. Moreover, it takes precedence over the existing legislation of Hong Kong as a special administrative region from Mainland China. The move has stirred heated protests from Hong Kong residents. They have been demonstrating in the streets against China’s plan to increase its hold on the city.

US-Hong Kong Trade Relations

In 2018, the Office of U.S. Trade Representative report said that trade in goods and services between the U.S. and Hong Kong was worth $60 billion. $50.1 billion in exports from the U.S. and $16.8 Billion in imports from Hong Kong.

The special trade status exempts Hong Kong from tariffs that the U.S. has imposed on mainland China. This is due to the ongoing trade war.  If the U.S. decides to revoke Hong Kong’s special trade status. It would also affect over 1300 American companies operating in the Chinese City.

According to Willem, Hong Kong is not a huge Asian manufacturing hub. But the new security law would affect its role as a financial hub for China and the Asia Pacific region. Moreover, tariffs are a secondary concern. Compared to other issues that would result from the revoked special trade status, according to Willems’

“What’s really significant is going to be export controls. Do we stop U.S. technology from going to Hong Kong without a license? Do we have different tech treaties, aviation treaties with Hong Kong?”

Hong Kong’s Access to Sensitive Products in Jeopardy

A report by Capital Economics research firm said the revoked order would also cause the U.S. to restrict the sale of sensitive technologies from firms based in Hong Kong.

Economic experts predict that if the U.S. revokes the special trade deal, these firms would lose their ability to access sensitive products, and Hong Kong would start to lose its competitive edge as a business hub over mainland China.

“Knowledge-intensive products from the U.S. only make up around 5% of Hong Kong’s total imports.”

“But restricting the ability of Hong Kong-based firms to source sensitive products remove one of Hong Kong’s distinct advantages as a business location relative to mainland China,” said Mark Williams.

The two-year-long trade war between the U.S. and China has affected economic news from both countries. It is a significant part of the race to control future technology.

In a move to protect American Intellectual property from what it considers theft from China, the U.S. has implemented a new law restricting the sale of semiconductors to Chinese tech company Huawei.

“The U.S. government will have full global authority. In interpreting what chip items Huawei will be able to access going forward.” The China Renaissance reported.

The tension between U.S. and China is rising as Trump expressed his anger over China’s inability to honor the terms of the deal in 2020 due to the Coronavirus effect on China’s economy and the global economy.

“There’s a lot of political risk from blowing up the deal. The consequences would mean a tit for tat.  Moreover, back and forth between the U.S. and China at a time when potential Trump voters are already suffering.”  Stated Scott Ian, Chinese economy specialist at CSIS.

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