Ever since United States President Donald Trump’s March 1 announcement that he would slap import tariffs on steel and aluminum, Hong Kong has been drawn into this US-staged trade war, with the city government’s request for exemption being ignored.
In more than a month, the situation has intensified. On April 3 the US government accepted the Special 301 Report and proposed to levy 25 percent tariffs on a number of Chinese mainland products. The list includes 1,300 goods in areas such as aerospace, information and communication technology, robots, machinery and more worth about US$50 billion. The Chinese government had no choice and on April 4 announced 25 percent tariffs on 106 US products in 14 areas — including agricultural products like soybeans as well as automobiles, cosmetics and airplanes, also amounting to US$50 billion. On April 5, Trump said he had instructed the US Trade Representative to consider additional tariffs on US$100 billion more Chinese imports according to the Special 301 Report. On the following day China’s Ministry of Commerce and Ministry of Foreign Affairs announced the country was ready to take on the challenge.
This presents a very serious problem to the special administrative region government and Hong Kong community — how should the city react to this worsening trade dispute initiated by the US?
First, we must have a good grasp of its nature.
As far as global trade relations are concerned, the US initiated this dispute, promoting unilateralism and protectionism. China has been forced to fight back in order to uphold the multilateral trade system and champion liberalization and facilitation of global trade and investment.
As to bilateral ties, Washington’s Section 301 investigation on China this time differs from the past six waves of trade protectionism against China — five times in the 1990s and once in 2010. Unlike the first time in 1990 when the US put China on the priority watch list for intellectual property, the next four times Washington put pressure on Beijing by evoking Section 301. The focus of these five times was the US’s desire for China to abide by the rules of the game in global trade it had laid down. What Washington was concerned about when it launched the sixth wave in 2010 was the specific industry of wind-power equipment manufacturing. Since both sides respected the global trade rules implemented at that time by the World Trade Organization, an agreement was reached through negotiation under the WTO’s dispute-resolution mechanism.
This time, however, is different. There is now a common belief among American elites that the US should not have let China join the WTO and grow strong under the US-led world order. They did not expect to see China become the world’s second-largest economic entity and replace the US as the world’s No 1 in global merchandize trade. More disappointment came when China did not change its political system as expected following the development of a market economy. Hence, the US started adjusting its global strategy from late last year to early this year, now viewing China and Russia as its major opponents. Washington decision-makers, regretting acting too late, are trying to contain China in various ways, hence the trade war.
Understanding the true nature of the trade row this time, Hong Kong residents should understand we could not possibly stay out of it. Firstly 7 to 9 percent of products in mainland-US trade go through Hong Kong. A trade war undercutting trade volume would definitely damage the SAR’s entrepot trade service industry. The SAR’s relevant policy bureaus must scrutinize the lists of products involved to assess the possible scope of damage.
As an independent customs entity, Hong Kong should certainly evoke WTO rules to maintain its free port status. Yet, since Hong Kong is part of China, the SAR government and its residents ought to stand on the side of the country and fight against unilateralism and protectionism.
Against a background of sweeping and unprecedented adjustments to the global economic, financial and political landscape, international relations have undergone obvious changes. The US government has temporarily exempted the steel and aluminum imports from a number of its allies. On April 5, documents released by the WTO showed that Japan and the European Union had asked to join the US in its request for WTO consultations related to the protection of certain intellectual property rights and the transfer of technologies to Chinese joint-venture companies. As Western countries choose to side with the US, Hong Kong, being part of China, could not and should not try to stay neutral.
Last but not least, the SAR government must be resolute in its efforts to integrate Hong Kong’s development into the country’s overall strategy. With the biggest population in the world and an economy still on the rise, the mainland boasts the largest domestic market worldwide and thus an internal dynamic sufficient to withstand any external shock. Hong Kong, on the other hand, is an urban economy and cannot possibly be self-sufficient. In the face of significant structural changes in global financial and trade relations, the only thing the city could do is to expedite its economic integration with the mainland and receive inexhaustible energy for development.
(The author is a senior research fellow of China Everbright Holdings)
(Published on Page 7, China Daily Hong Kong Edition, April 11, 2018)