A full-blown trade war between the US and China could harm investor confidence in Hong Kong and deal a blow to the city’s stock and capital markets, former US Federal Reserve Bank economist and now deputy to China’s legislature David Wong Yau-kar has said.
Wong issued the warning on Friday after US President Donald Trump signed off on tariffs of 25 per cent on steel and 10 per cent on aluminium imports, raising the stake of a trade war. Canada, which represents 41 per cent of US steel imports, and Mexico are exempt from the tariffs.
Hong Kong’s Commerce and Economic Development Bureau reacted by saying the government “regrets and disapproves” the US’s decision.
A spokesman said the bureau has recently filed a formal representation to the US and has registered “grave concern” at the General Council meeting of the World Trade Organisation. The government will study the latest tariff in detail and “continue to pursue the matter on the WTO front and with the US administration with our justified arguments and strong grounds to minimise the impact on our industry”.
Other business veterans from Hong Kong said while the steel and aluminium tariffs have not hurt the city’s economy yet, the city must monitor the US’s every moves closely.
“So far, (the tariffs) have not had a huge impact on the whole (global) economy. But trade has now been used as a weapon, and that cannot be good for the trading system,” Wong, a Hong Kong deputy to the National People’s Congress, said on the sidelines of the annual parliamentary meetings.
“Hong Kong is such a free economy that it is dependent on trade. Any trade wars could have profound impacts on the city. In the end, investor confidence, the stock market and the capital market would be affected.”
The possible emergence of a trade war is “unreasonable”, he added.
“No one in the world agrees with Trump unilaterally (imposing tariffs),” he said. “I hope everyone could respect the free trade system.”
The US Department of Commerce earlier claimed that a US$55 million (HK$430.6 million) trade deficit from aluminium products existed between Washington and Hong Kong from business conducted during January to October last year. It said the imbalance had negatively affected the economic welfare of aluminium-related industries in the US and threatened national security.
Irons Sze Wing-wai, honorary president of the Chinese Manufacturers’ Association, said a lot of the products China exported to the US through Hong Kong are consumer products, which Americans very much need.
“Where are iPhones made? They’re made in the mainland. China’s consumer products are helping the US control its inflation,” said Sze.
“Steel will become more expensive in the US with the tariff. That means the price of vehicles will go up.”
Hong Kong’s American Chamber of Commerce president Tara Joseph said her chamber supports free trade and is concerned about any “tit-for-tat or retaliatory action”.
“Fortunately aluminium and steel are not major components of trade between the US and Hong Kong,” she said.
“We also believe that an understanding of Hong Kong’s strong trade relations with the US is essential for Washington decision makers to understand these days, especially given our matching views on free trade, transparency and rule of law.”
Michael Hui Wah-kit, vice-president of the Hong Kong Chinese Importers’ and Exporters’ Association, said it would be too early to tell how big of an impact it would have on Hong Kong companies.
In the past few years, he said, duties levied on imported semi-finished products into the US have driven Hong Kong companies to send their products elsewhere.
“They’ve got accustomed to all these sort of duties.Hong Kong companies have had to slowly transform over the years,” he said.
He cited one example of a Hong Kong aluminium factory based in mainland China who had to bear with a 61.36 per cent countervailing and 22.28 per cent anti-dumping duty since 2008 for all semi-finished products.
“It completely wiped out their business in the US market,” he said.
Separately, Wong called for Hongkongers’ support in the Greater Bay Area, an initiative endorsed by the Chinese leadership to foster integration between Hong Kong, Macau and nine neighbouring mainland cities.
He said the initiative could boost the city’s economy and tackle some people’s livelihood problems too, such as the lack of elderly homes in Hong Kong.
But there are issues to be solved, he said, pointing to the requirement that Hongkongers need to pay mainland salary taxes if they spend more than 183 days within a year on the mainland. He added it was time to look at whether this requirement can be relaxed.
“There has to be breakthrough in the tax system,” he said.