REMOVAL OF HK’S SPECIAL TRADE STATUS HURTS US MORE THAN CHINA

An economics professor at Syracuse University and senior fellow at the Peterson Institute for International Economics has warned that removal of Hong Kong's special customs status is toothless, and more symbolic than of real consequence for the mainland.

In an opinion piece carried by CNN on June 23, 2020 (June 24, 2020 in Manila), Prof. Mary E. Lovely said “as a separate member of the World Trade Organization (WTO), Hong Kong's exports to the US have enjoyed ‘most favored nation’ status -- subject only to tariffs offered to every other member. Revoking the city's special status will subject its exports to the high tariffs the president levied against China during his ongoing trade war. But this change will barely budge the status quo. That's because Hong Kong's economy consists mostly of financial, logistical and other services, not manufactured goods. As Nicholas Lardy of the Peterson Institute for International Economics explains, of the $45 billion in Hong Kong exports to the US, only 1% is actually produced in Hong Kong and eligible for low tariff rates. Most of Hong Kong's exports to the US are goods produced in China that are re-exported through Hong Kong and already subject to the same high tariffs as the goods China exports directly.” 

Lovely contends Hong Kong and American interests, not Beijing’s, will be the main victims of Trump's decision to walk away from the special relationship. “Bilateral free currency exchange, preferential customs treatment and visa-free travel have made Hong Kong a center for US commerce in the region. In 2018, US foreign investment in Hong Kong totaled over $82 billion. More than 1,300 US companies operate in the city, of which an estimated 800 are regional offices or headquarters. The city is an important market for US exports of meat and agricultural products. In 2019, the US trade surplus in goods with Hong Kong was $26 billion, the highest among its trading partners.

“By revoking Hong Kong's special status, the president risks abandoning US businesses based in the city. Along with higher tariffs on goods they ship back to the US, these businesses may in time be subject to stricter controls on access and use of US technology. American business travelers may lose visa-free access to the city, a possible retaliatory response by Beijing to the removal of Hong Kong's special status. Perhaps most importantly, a failure to maintain Hong Kong's special status represents a missed opportunity to pressure China as it contemplates stricter control over the tax, regulatory and legal systems to which US businesses are subject,” Lovely concluded.