19th June 2020 – (Hong Kong) Asian stocks have continued to slip of late, with a variety of economic institutions painting a long road ahead for recovery from the Covid-19 outbreak. Of course, the situation is not being helped by China’s strained trade relationship with the US, or the wider implications for formerly autonomous economic regions such as Hong Kong.
As Hong Kong continues to recover from a pandemic that caused 1,128 cases and four deaths, the US is now considering steps to revoking the region’s special status as China continues to reduce the area’s autonomy.
We’ll explore this further in the post below, while asking whether this could ultimately threaten Hong Kong’s status as global business hub.
What has Happened so Far?
While the China – US trade war may have reached a sense of temporary accord back in January, the coronavirus outbreak has caused further tensions between the two nations.
This has much to do with the Trump administration’s assertion that China was complicit in the outbreak, or at least had prior knowledge of the coronavirus and its potential to spread globally.
With China now also looking to impose a new national security law on Hong Kong (under the vague premise of preventing terrorism and subversion), the latter is region is being dragged into the conflict amid fears that China will use the legislation to increase its authoritarian control over the region.
This fear has prompted the US to intervene, by reaffirming that it would take direct action to revoke Hong Kong’s special status and preferential treatment should the region have its high degree of autonomy compromised.
This currently sees Hong Kong treated as a separate customs and travel territory from the rest of China, while the terms of the 1992 Hong Kong Relations Act also make provisions for special trade, export and economic controls.
Of course, this remains a threat for now, but there’s little doubt that the Trump administration would follow through on this if China did indeed seek to assert authoritarian control on Hong Kong.
What Would This Mean for Hong Kong?
The extent of the implications for Hong Kong are hard to gauge accurately at this point, but things could change quickly given Trump’s power to enact new powers and conditions through an executive order and without the participation of the Democrats.
Trump has also revealed that revoking Hong Kong’s status will affect “the full range of agreements” that it has with the US, while any changes will also be imposed with “few exceptions”.
However, the areas most likely to be affected include trade, immigration and sanctions, while the value of the HKD and the region’s assets could also decline as a result.
In the case of trade, it’s likely that Trump would impose significant sanctions on the $67 billion worth of goods and services that flow between the two nations. These would be similar to the tariffs imposed on Chinese imports during the ongoing trade war, increasing the cost of trade and introducing the type of anti-dumping laws witnessed in Asia’s largest country.
This has also had an impact on the financial markets, with both the US and Hong Kong dollars ticking lower amid the ongoing conflict and the injection of further stimulus measures into the US economy.
On a more positive note, commodities such as gold and oil have rallied over the course of the last few days, with the former benefitting from modest safe haven inflows and the latter seeing prices recover after a catastrophic March.