HK braces for turbulence as US-China trade war turns ugly with Donald Trump raising tariffs on Chinese exports

07-May-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

Hong Kong has braced itself for more turbulence as US President Donald Trump again raised punitive tariffs on Chinese exports in an unexpected move on Monday, marking an ugly turn in the US-China trade war.

In an abrupt announcement on Twitter just after midnight on Sunday, Hong Kong time, Trump said tariffs on $200 billion imports from China would be increased to 25 per cent from 10 per cent, while threatening to impose the same levies on other Chinese exports to America totalling about $350 billion.

The move came just days before top Chinese officials were set to arrive in Washington for another round of trade talks to end a bilateral war of tit-for-tat tariffs.

Industry representatives in Hong Kong expressed dismay over the tough road ahead.

“It will be a very turbulent day,” Hong Kong Shippers’ Council chair Willy Lin Sun-mo said. “Everybody has to measure their own risks in case the two parties turn the table.”

Federation of Hong Kong Industries chair Jimmy Kwok Chun-wah said: “The sudden change creates a headache for Hong Kong exporters… It looks like it will be an even longer road before a deal is reached.”

He added this was Trump’s tactic to squeeze the most out of a deal.

Lin said the 25 per cent tariffs were too big for Hong Kong factories across the border to swallow and this was against Trump’s claim that “tariffs paid to the US have little impact on product cost, mostly borne by China”.

News of Monday’s development took an instant toll on the Hong Kong stock market, with the benchmark Hang Seng Index tumbling 994 points or 3.31 per cent to 29,086, in morning trading. The Shanghai stock market was down 159 points or 5.2 per cent to 2,918, while Shenzhen stocks opened 594 points or 6.1 per cent lower at 9,079.

Hong Kong Monetary Authority chief Norman Chan Tak-lam warned of mounting risks on global financial markets and threats to the city’s war chest if the trade talks fell through.

The Exchange Fund, Hong Kong’s coffer for keeping the city’s currency stable against speculators, saw investment returns more than triple to HK$120.9 billion in the first three months of this year a quarterly record from HK$35 billion in the same period last year.

The United States is Hong Kong’s second-largest trade partner after China, with the city serving as a middleman for many Chinese exports to American shores.

Hong Kong exports shrank 2.4 per cent in the first quarter of this year amid the trade war.

The city remained protected by a separate economic arrangement under the US Hong Kong Policy Act, in force since the 1997 handover, but even so, the local trade sector would not escape unscathed.

Beijing had yet to respond to Trump’s latest decision on tariffs, but rumours spread that top negotiator and Chinese vice-Premier Liu He was considering cancelling his trip to Washington this week.

Last Thursday, hopes were high Trump and President Xi Jinping were close to sealing a deal to end the trade war, which had gone on for almost a year.

As an immediate measure, Lin from the Shipper’s Council on Monday said mainland China-based Hong Kong factory owners could outsource orders to other countries such as Vietnam, Cambodia or Indonesia while stepping up the relocation of manufacturing facilities to places outside mainland China.


Category: Hong Kong

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