• Mr Trump’s move plugs loophole some Chinese firms have used to avoid export controls and tariffs 
• One expert said that many more companies and individuals could potentially end up being sanctioned
• Another said that Hong Kong’s importance as a trade centre for high-tech products may be diluted
   

SINGAPORE — In another escalation of tensions between the United States and China, US President Donald Trump signed an order on Wednesday (July 15) that will end Hong Kong’s special trading status that it had enjoyed for almost three decades. 

The move comes after China imposed national security laws on the territory that critics say is in violation of its “one country, two system” principle, effectively ending the city’s autonomy from mainland China.

Mr Trump also signed a new legislation called the Hong Kong Autonomy Act that will sanction individuals and banks found to be doing business with Chinese officials who are enforcing the new national security laws. 

China has hit back at Mr Trump, with its foreign affairs ministry saying that it will also impose sanctions on American businesses and individuals if the US does not correct its course. 

So what do these all mean? And how will they affect the already fraught trade tensions between both countries?

WHAT ARE THE IMPLICATIONS?

The ending of Hong Kong’s preferential treatment essentially means that the privileges that companies and individuals in Hong Kong have enjoyed, which have not been extended to mainland China, will most likely cease.

In the words of Mr Trump at a news conference in the Rose Garden at the White House: “No special privileges, no special economic treatment, and no export of sensitive technologies.”

Some examples of what may change: 

• Hong Kong-origin products may be subjected to the same tariffs as those in China, which have been higher since Mr Trump has been incrementally raising tariffs on China’s goods since the trade war started in 2018

• Hong Kong citizens entering the US may be treated the same as those from China, which means they would be subjected to more vigorous vetting and restrictions 

• US citizens may now also have to get a visa when entering Hong Kong

• Hong Kong may now require export licences when bringing in high-value technology from the US 

Mr Alex Capri, visiting senior fellow at the National University of Singapore, said that the preferential treatment of Hong Kong by the US has been somewhat of a “loophole” for Chinese companies that have links to Hong Kong entities.

This is because they can escape the export controls that the US imposes on Chinese firms through Hong Kong. 

Mr Trump’s order effectively closes this “backdoor”, thereby increasing costs for these companies that trade with the US. 

WHAT WOULD IT MEAN FOR GLOBAL TRADE? 

Calling this latest tit-for-tat development between the US and China a “major turning point” in geopolitics, Mr Capri said that many more companies and individuals could potentially be seen as contributing to the erosion of Hong Kong’s autonomy and end up being sanctioned. 

“The net is cast much, much farther and much wider, there are many vulnerable companies within that ecosystem,” he added. 

This could have an impact on Hong Kong startups that have numerous cross-fertilisation of ideas with those in Shenzhen, or blockchain companies working with banks to digitise the Renminbi currency. 

Economist Song Seng Wun from CIMB Private Banking said that companies may have to start thinking about relocating to other places in order to operate in a more “neutral zone”. 

Senior economist Irvin Seah from DBS bank said that the importance of Hong Kong as a trading hub for high-value IT products will be diluted. 

Some trade diversion of these high-tech products may be rerouted to member countries of the Association of Southeast Asian Nations, he added. 

However, the impact on China would be relatively smaller compared with the other trade actions that the US has taken on its competitor over the last two years, Mr Seah said.

More importantly, he pointed out that this would spur China to invest more heavily in developing its own technology. 

“This could eventually lead to the bifurcation of technology globally,” he said, referring to the digital and innovation divide that could affect everything from smartphones to Wi-Fi networks.