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17 Jul 2020

Econ Digest

The US revokes Hong Kong’s special status How will the financial, trade, and immigration policies change?

คะแนนเฉลี่ย

It has been almost two months since tensions between China and the US in regarding to China’s national security law for Hong Kong surfaced, provoking new global geopolitical risks. Recently, President Donald Trump signed an executive order ending preferential treatment for Hong Kong that had existed for over 28 years under the United States-Hong Kong Policy Act of 1992[1]. The essence of the United States-Hong Kong Policy Act was to retain the relationship between the US and Hong Kong in many respects after the UK returned Hong Kong to China in 1997. Unlike the US's policy on China, the revocation of Hong Kong's special status means Hong Kong will be treated the same as or similar to China.  Therefore, the termination of Hong Kong's special status may result in policies that affect its economy, especially in the areas of US-Hong Kong trade issues, immigration policy and sanctions measures.

 

    The trade policy between the US and Hong Kong is expected to change to mirror the US trade policy with China, which means Hong Kong's exports to the US will be subjected to additional import duties under Section 301 of the Tariffs on China that have arisen from the US-China Trade War, as well as being subjected to the US’s anti-dumping duties (AD) and countervailing duties (CVD) on China (with regards to CVD, Hong Kong’s products will only be affected for those that the US charges at the level of entire industries, while company-specific measures will not be included).  However, KResearch sees that the impact on products exported from Hong Kong to the US will be minimal, because:

 

  • Products exported from Hong Kong to the US that will be subjected to additional import tariffs are products manufactured in Hong Kong, which are worth about USD 400 million[2]  (Data as of 2019, accounting for only 1 percent of Hong Kong’s total exports to the US).
  • Hong Kong’s re-exportation will not be affected, as Hong Kong’s re-exportation of products originating from China[3] are currently levied by the US under Section 301 of the Tariffs on China, or even under AD and CVD measures. Meanwhile, the respective countries are taxed for re-exported products from other countries under the US trade deal.

 

As for immigration policy, Hong Kong citizens holding a Hong Kong Special Administrative Region passport may be treated by the US as being equal to Chinese citizens. For example, the US plans to cancel visas for Chinese graduate students and researchers affiliated with Chinese universities tied to the Chinese military; in this case, Hong Kong citizens that fall within the relevant criteria will also be affected.

 

Regarding the sanctions measured against Hong Kong or Chinese individuals or businesses engaging in Hong Kong politics, recently the US President signed into law a bill to punish financial institutions conducting transactions with Chinese officials involved with the enforcement of the Hong Kong National Security Law, including barring executives of those institutions from entering the U.S. and restricting their ability to engage in US dollar-denominated transactions[4].

 

In the short term, the revocation of Hong Kong’s special status by the US will have a limited impact on the trade between the US and Hong Kong, while sanction measures may only be a symbolic response to Chinese authorities. But in the long term, a close eye still needs to be kept on the development of the conflict between the US and China regarding Hong Kong issues, as it may affect the intensity of economic countermeasures that hinder business operations. Other sanction measures which are issued at later dates must also be monitored, as they may undermine the status of Hong Kong as an international trade center and as a part of Asia’s important financial center.



[1] Later changed to the Hong Kong Human Rights and Democracy Act in 2019.

[2] https://​www.piie.com/blogs/china-economic-watch/trumps-latest-move-hong-kong-bluster

[3] Products in this segment accounted for 88% of Hong Kong's re-export value in 2019.

[4] https://www.bloomberg.com/news/articles/2020-07-14/trump-to-address-china-tensions-in-tuesday-rose-garden-event?srnd=premium-asia


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