President Donald Trump would be no boon for Hong Kongers. While some of the 0.1% may benefit, Trump’s stances on global tax and trade and strained relationships with people in Hong Kong and the region could mean a bump from Trump.
Photo credit: Gage Skidmore; www.flickr.com
Can he make America great again?
Donald J. Trump – Manhattanite, businessman, property developer, reality TV star, Twitter expert, the man who promises to make America great again – is now the leading contender for the Republican presidential nomination. Victories in early primary states have erased doubts about his staying power in the race or that his incendiary language with regard to illegal immigrants, China, the other contenders for the Republican nomination (Jeb Bush’s campaign was doomed the moment Trump opined that Bush is “low energy”), or certain journalists, would hurt his campaign. The Republican voter that propelled Trump to victory in South Carolina either lacks a college degree, is angry at the federal government, or favours a hard line on illegal immigration.
Trump’s website states that U.S. China policy is made by “Wall Street insiders that want to move U.S. manufacturing and investment offshore”. This might explain why some Americans in Hong Kong pledged their support to Bush early on in the campaign, with the president of Republicans Overseas hosting a Bush fundraiser in Hong Kong last September. With Trump’s ascendancy, worried insiders might need to consider the other party’s candidate with close Wall Street ties, Hillary Clinton.
U.S. – China Relations
Trump’s rhetoric about China is not new for the current presidential campaign. When he publicly considered running for president in 2011, he summarised his China policy by saying “These are not our friends. These are our enemies. These are not people that understand niceness”.
On Trump’s website, the China section is long on rhetoric and short on details. Trump pledges to immediately declare China a currency manipulator, force China to uphold intellectual property laws and stop forcing U.S. companies to share proprietary technology with Chinese competitors as a condition of entry to China’s market, and end China’s export subsidies and lax labour and environmental standards. Trump proposes a 45 percent tariff on Chinese goods until China stops manipulating its currency.
Trump also proposes to strengthen the U.S. military and to deploy it appropriately in the East and South China Seas to discourage Chinese adventurism, though he fails to provide detail on what military assets are to be deployed.
China Human Rights, Hong Kong Autonomy
Despite the attention given to China trade issues on his website, the website and Trump on the stump are silent on human rights in China and Hong Kong autonomy. For Trump, when it comes to Hong Kong, it’s all about business.
Hong Kong Experience – Biting the hand that rescues
In 1994, Trump’s Riverside South project on Manhattan’s West Side in 1994 ran into financial difficulty, and Trump was rescued by Henry Cheng of the New World group and other investors from Hong Kong, who acquired a US$300 million mortgage on the property for US$82 million. The Hong Kong investors sold the bulk of the project in 2005, for US$1.8 billion, in the largest residential real estate transaction in New York City history. Trump was entitled to a portion of the profits but sued the Hong Kong investors, claiming the group could have gotten more money. Trump eventually ended up with minority stakes in a pair of office buildings on the site, now worth US$640 million, according to Bloomberg. Trump did not win the lawsuit, though the fallout from the litigation also resulted in at least one indictment for tax evasion for some involved.
Trump and Hong Kong: Trump was rescued by Henry Cheng of the New World … The Hong Kong investors sold the bulk of the project in 2005, for US$1.8 billion, in the largest residential real estate transaction in New York City history. Trump … sued the Hong Kong investor… did not win the lawsuit…the fallout from the litigation also resulted in at least one indictment for tax evasion.
As far as taxes go, his policies are a mixed bag for those connected to the US, Americans and other caught in the broad IRS net, that would be impacted by his tax ideas.
Money managers in Hong Kong should be concerned about Trump’s accusations that hedge fund managers are “getting away with murder”, his claims that other candidates are beholden to the financial industry, and his proposal to close the carried interest loophole. However, elimination of the carried interest loophole would be combined with a lower top rate on ordinary income of 25 percent and the larger tax break that will come from Trump’s proposed low 15 percent tax rate for pass-through business income. Wealthy Americans, including money managers, will find ways to disguise their salaries as pass-through business income to take advantage of the low rate and generally, people will want to be an independent contractor so that they receive business income that will be taxed at the lower rate.
Foreign Account Tax Compliance Act & Taxes
Unlike the detailed statements Democrats Abroad obtained from Hillary Clinton and Senator Bernie Sanders’s about the candidates’ positions on FATCA and the taxation of overseas Americans, Republicans Overseas does not state on its websites if Trump has a position on FATCA, whether Trump has endorsed the Republican National Committee’s prior resolutions on FATCA, or if Trump supports the lawsuit initiated by Republicans Overseas Action to declare FATCA unconstitutional (a federal judge ruled in September 2015 that the lawsuit is unlikely to succeed on its merits and denied the preliminary injunction requested by the plaintiffs).
Loving the 0.1%
U.S. taxpayers in Hong Kong would certainly benefit from Trump’s tax proposals for individuals. This includes a reduction of the current seven tax brackets, which range from 10 to 39.6 percent, to three brackets of 10, 20, and 25 percent, an increase in the standard deduction to US$25,000 for single filers and US$50,000 for joint filers in 2015 (indexed for inflation thereafter), and a repeal of the alternative minimum tax, and a repeal of federal estate and gift taxes. According to the Tax Policy Center’s analysis of Trump’s tax plan, high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income, with the highest-income 0.1 percent of taxpayers (those with incomes over $3.7 million in 2015 dollars) seeing an average tax cut of more than US$1.3 million in 2017. The Tax Policy Center cautions that increased government borrowing to cover the deficits that result from the lost tax revenue would push up interest rates and crowd out private investment and/or require unprecedented cuts in federal spending.
“U.S. taxpayers in Hong Kong would certainly benefit from Trump’s tax proposals for individuals” but Trump is silent on FATCA.
Trans Pacific Partnership, Free Trade
Unfortunately for Hong Kong, Trump vehemently objects to the TPP. Although not a signatory to the TPP, according to the Hong Kong Trade Development Council, as an economy where services account for more than 90 per cent of the GDP, Hong Kong is well-positioned to benefit from any FTAs in the region. The American Chamber of Commerce in Hong Kong recently suggested Hong Kong join the TPP in its submission to the Chief Executive’s Policy Address 2016.
Related: If Hong Kong feels the Bern: What a Sanders presidency means for HK (read Trans Pacific Partnership, Free Trade ‘section’)
As China is not a signatory to the TPP, Trump was ridiculed when he said that the TPP is “a deal that was designed for China to come in, as they always do, through the back door and totally take advantage of everyone”. Most experts take the view that although China could try and join the TPP in the future, it first has to meet the requirements laid out in the agreement in areas such as tariff reductions, intellectual property rights protection, pollution, independent labour unions, and reforming state-owned companies, none of which is likely to happen any time soon. Economists estimate are that over a decade, China will lose approximately US$100 billion of exports, making the TPP not to China’s advantage.
Limited Asia Exposure
Trump’s comments about Muslims has had a negative impact on perceptions of him not only in the Middle East, but in Asia as well, home to the world’s four largest Muslim countries of Indonesia, Pakistan, India and Bangladesh. Countries with Muslim insurgencies such as the Philippines and Thailand would also be concerned about a President Trump. National leaders and multilateral institutions throughout Asia would also need to weigh their relations with the U.S. versus their relations with China if the two superpowers enter a trade war. As one commentator has noted, Asians prefer an American president who is responsible and nuanced in his or her response to global events, such as the trajectory of Islam or the rise of China, and who refuses to see the world in the Manichean light that Trump does.
“his dispute with Akio Kashiwagi, a Japanese baccarat high-roller who in 1992 was stabbed 150 times at his home in Tokyo with a samurai-style sword. At the time of his murder, Kashiwagi owed… US$4 million to the Trump Plaza Hotel and Casino.”
Even earlier than his fallout with Hong Kong investors or concern about China trade issues, Trump’s business experience in Asia includes his dispute with Akio Kashiwagi, a Japanese baccarat high-roller who in 1992 was stabbed 150 times at his home in Tokyo with a samurai-style sword. At the time of his murder, Kashiwagi owed at least US$9 million to casinos in Atlantic City and Las Vegas, including US$4 million to the Trump Plaza Hotel and Casino.
Recently Trump has also licensed his name to proposed projects in South Korea, India, and in the Philippines, a 61-storey Trump Tower in Makati scheduled for completion this year. As the latter two countries suffer periodically from terrorist attacks by extremist Muslim groups, it remains to be seen whether the developers will seek to end the licensing agreements.
With Trump the leading candidate for the Republican nomination, similar to Senator Sanders there is the risk that other presidential candidates and politician will need to adopt in part his positions on China and/or the TPP. Evidence of this possibility is the recent decision by Senator Rob Portman (Republican – Ohio), a former United States Trade Representative, to oppose the TPP. On his reality television show The Apprentice, Trump made famous the phrase “you’re fired”. His policies and statements throughout the campaign have given many in Hong Kong a reason to wish they could fire him from politics.