In an announcement last Friday, U.S. President Donald Trump stated he plans, among other measures aimed at rebuking China, to cancel all special trade privileges for Hong Kong. “I am directing my administration to begin the process of eliminating policy exemptions that give Hong Kong different and special treatment,” Trump said from the White House Rose Garden.
The remarks came days after China’s legislature approved a proposal by the ruling Communist Party to impose sweeping new national security laws on Hong Kong. Critics in Washington and elsewhere charge that in doing so, Beijing would erode the autonomy the former British colony was guaranteed for 50 years under the “one country, two systems” model that its return to China in 1997 was premised on.
Earlier in the week, the Department of State certified to Congress that Hong Kong “does not continue to warrant treatment under United States laws in the same manner as U.S. laws were applied to Hong Kong before July 1997.”
For Hong Kong, which has long enjoyed preferential tariff treatment and exemptions from U.S. trade and customs rules applicable to China, the move would potentially expose roughly half of the territory’s exports to the same punitive Section 301 duties that Trump has unilaterally imposed on more than $350 billion worth of Chinese goods.
Removal of the territory’s “special status” will also likely mean the extension of antidumping and countervailing duties on goods from Hong Kong which are materially the same as those from China currently being penalized.
Other possible customs impacts may involve changes to the country of origin labeling of goods made in Hong Kong and the termination of U.S. recognition of certificates of origin or other trade documents issued by Hong Kong authorities;
Additionally, the U.S. says it intends to modify existing controls on exports of dual-use technologies to Hong Kong, meaning that tighter restrictions can be expected on such shipments in the future.
Why It Matters
Hong Kong was the United States’ second-largest trading partner in terms of trade surplus last year and its tenth largest export market. In 2018, U.S. exports totaled $37.3 billion (down 6.4% or $2.5 billion from 2017 but up 73.5% from 2008) in 2018, whereas U.S. goods imports were $6.3 billion (down 14.7% or $1.1 billion from 2017, and down 3.0% from 2008).
While the change in status could have a significant impact on select sectors, primarily those involving technology, some have suggested that U.S. exporters may end up being hurt the most by the administration’s change in trade policy should Beijing retaliate.
In response, China warned it “will take necessary countermeasures” against “foreign meddling” in Hong Kong’s affairs. With this in mind, Beijing has reportedly told its major state-run commodity buyers to pause purchases of some U.S. farm goods, including soybeans and pork, perhaps signaling that the highly touted phase-one trade deal between the world’s two biggest economies could now be in serious jeopardy.
For additional context regarding this issue, the Trump administration last month released a 16-page position paper outlining America’s strategic approach to China.