Hong Kong: Caught in Crossfire of Intensifying Trade Dispute Between China, U.S.

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An unexpected move by U.S. President Donald Trump and his administration to hike tariffs on Chinese goods jolted global markets this week and sandwiched Hong Kong, a re-export hub between China and the U.S., between the two largest economies in the world.

Trump tweeted on May 5 that tariffs on US$200 billion of Chinese goods would rise to 25% from the 10% and that $325 billion of untaxed goods could also face 25% duties “shortly”. The first set of new tariffs took effect at 12:01 am EST on May 10. The discussions with China were moving “too slowly” as Beijing tried to re-negotiate, Trump claimed.

“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” he tweeted.

His comments surprised analysts and traders who were closely monitoring the situation, as global newswires that cited insider sources reported just last week that negotiations were in the endgame and that the two sides could sign a deal as soon as this week.

The impact on China’s economy could be significant. Ma Jun, a Chinese central bank advisor, said U.S tariffs could cut China’s GDP growth by 0.3%.

As a re-export hub, Hong Kong will inevitably feel the squeeze, analysts said.

In technical terms, the city is shielded by the United States-Hong Kong Policy Act, which states that Hong Kong is treated separately from China in terms of trade export. That means the U.S. tariffs imposed on China do not apply to Hong Kong.

But “Hong Kong as a middleman will definitely be affected by the trade war, which is a matter of magnitude”, said Baptist University economist Dr Billy Mak Sui-choi.

Financial Secretary Paul Chan Mo-po echoed his comments.

“The dark cloud covers a wide area and has affected investor sentiment,” Chan said on a radio show. “The trade war is worrying because it is affecting our biggest trade partner, China.”

“But Hong Kong is affected more indirectly,” Chan said. “The trade war will put pressure on jobs across the border and affect [China’s] GDP growth and financial markets, which may spill over into Hong Kong.”

Hong Kong’s financial markets closed down 2.9% on Monday after Trump’s announcement, its worst performance in four months.

The Hang Seng Index rebounded on Friday, but is still set for a 5% weekly loss.

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