Hong Kong into U.S-China trade war

Pompeo action threatens to thrust Hong Kong into U.S-China trade war

The announcement comes as China says it plans to impose national security legislation on Hong Kong.

By DOUG PALMER

Secretary of State Mike Pompeo certified to Congress on Wednesday that the Trump administration no longer views Hong Kong as an autonomous region of China, a move that jeopardizes the city's special status under U.S. law that has helped it flourish as a destination for trade and investment.

The announcement comes as China says it plans to impose national security legislation on Hong Kong, a move that has raised worries that Beijing is doing away with the "one country, two systems" principle that has allowed Hong Kong to have its own legislative body, currency and trade status.

"Beijing’s disastrous decision is only the latest in a series of actions that fundamentally undermine Hong Kong’s autonomy and freedoms and China’s own promises to the Hong Kong people under the Sino-British Joint Declaration, a UN-filed international treaty," Pompeo said in a statement.

Pompeo's action sends a warning to Beijing that President Donald Trump could issue an executive order removing some or all of Hong Kong's special status under U.S. law, industry officials said. That could hurt China, but also harm Hong Kong and U.S. companies that have billions of dollars in investment there.

The White House did not immediately respond to a question on the topic, but Trump hinted at possible sanctions on China at an event on Tuesday.

“It is something you're going to be hearing about before the end of the week. Very powerfully, I think,” Trump told reporters. He said the administration would be doing something “very interesting.”

The Washington-based Hong Kong Democracy Council praised Pompeo's decision and urged Trump "to immediately marshal and unleash all available resources and tools to prevent the death of Hong Kong as a free and global city."

However, strong action by Trump could have negative consequences for an estimated 85,000 U.S. citizens who live in Hong Kong, as well as the more than 1,300 U.S. companies with operations there. Nearly every major U.S. financial firm has a presence in Hong Kong, with hundreds of billions of dollars in assets under management, according to a 2019 State Department report.

In addition, exports from Hong Kong could suddenly face the same duties that Trump has imposed on more than $350 billion worth of Chinese goods if former British colony is no longer treated as a separate autonomous region.

Depending on Trump's next steps, Hong Kong could end up "right in the firing line" of the U.S.-China trade war, said Nick Marro, global lead trade analyst for the Economist Intelligence Unit.

China could retaliate against U.S. companies by placing them on an "unreliable entity list" to restrict trade or by throwing up other obstacles, such as licensing delays. U.S. financial institutions, which have been trying to expand their market share in China amid recent policy liberalizations, could also make "an attractive target," Marro said.

Congress, in response to Beijing's moves to increase control over Hong Kong, last year passed an amendment to the 1992 U.S.-Hong Kong Policy Act that requires the State Department to assess whether Hong Kong continues to govern itself to a degree sufficient to be considered autonomous.

"After careful study of developments over the reporting period, I certified to Congress today 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. No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground," Pompeo said Wednesday.

The 1992 legislation committed the United States to treating Hong Kong as separate from the rest of China in a variety of political, economic, trade and other areas as long as Hong Kong remains “sufficiently autonomous.”

U.S. business groups, fearing that billion of dollars of U.S. trade and investment could be at risk if Hong Kong loses its special status, have urged Beijing to back off and the Trump administration to proceed carefully.

“Far-reaching changes to Hong Kong’s status under the U.S.-Hong Kong Policy Act as a separate territory in economic and trade matters would have serious implications for Hong Kong and for U.S. business, particularly those with business operations located there who exercise a positive influence in favor of Hong Kong’s core values," the U.S. Chamber of Commerce said.

The U.S.-China Business Council, which represents U.S. companies with operations in China, also urged caution.

"Hong Kong has long been an important city for U.S. businesses operating in the Asia-Pacific region," the group said. “USCBC urges all leaders to take those steps necessary to de-escalate tensions, promote economic recovery and the rule of law, and preserve the 'one country, two systems' principle."

Pompeo said the United States still stands with the people of Hong Kong and he took "no pleasure" from the decision, which could jeopardize Hong Kong's standing as a hub for international trade and investment.

"But sound policymaking requires a recognition of reality. While the United States once hoped that a free and prosperous Hong Kong would provide a model for authoritarian China, it is now clear that China is modeling Hong Kong after itself," Pompeo said.