No Relief in Sight for Hong Kong Exports

(Bloomberg) --

Hong Kong acts a bit like a lung for global trade in goods: Merchandise gets pulled in mostly from mainland China, funneled through the city’s massive port and then exhaled again around the world.

Right now the air is getting thinner. Weaker global demand and the impact of the U.S.-China trade war have hit Hong Kong’s cross-border commerce at the same time as domestic economy is crippled by months of political protest. In October, exports shrank 9.2% from a year earlier, while imports dropped 11.5%, according to data released Tuesday.

The vulnerability of this former British colony, dominated by the natural wonder of Victoria Harbour, to the trends affecting other economies is striking. Where once the workshops of Kowloon churned out low-price merchandise for sale around the world, nowadays the manufacturing is done across the border in Guangdong province. That means almost all the goods Hong Kong sells are actually made somewhere else.

The global trade downturn, which has extended the contraction in exports to 12 months, was the original headwind facing the city’s economy, before the protest wave began in the middle of this year. Now a 2019 recession is almost certain, with neither the trade tensions nor the domestic political crisis looking resolvable by year-end.

Charting the Trade War

Today’s Must Reads

• WTO threat | The Trump administration, which threatened last week to block the World Trade Organization’s 2020 budget, offered members a proposal that would allow it to continue operating, but would effectively dismantle the WTO’s appellate body, which officiates disputes that affect billions of dollars in commerce every year.
• Phase one call | China and the U.S. “reached consensus on properly resolving relevant issues” and agreed to stay in contact on the remaining points for a “phase one” trade deal during a phone call Tuesday morning Beijing time, Beijing said.
• Brexit scenarios | Bloomberg’s Rob Hutton outlines four ways Brexit could play out after next month’s U.K. general election. Catch up on them here. 
• Dumping ground | The European Union threatened to widen tariffs on corrosion-resistant steel from China, saying Chinese manufacturers may have shipped “slightly modified” versions of the product to dodge the duties.
• Saving bacon | U.S. pork producers see a potential $24.5 billion market in China within 10 years if the Trump administration can gain unrestricted trade access after the Asian country’s hog herd has been devastated by disease.

Economic Analysis

• Pipe dreams | The Commerce Department must reconsider, and possibly lower, duties on certain imports of steel pipes from South Korea, the U.S. Court of International Trade ruled.
• Wardrobe malfunction | The Trump administration suffered a setback in its bid to hold an importer liable for allegedly underpaying duties on imports of athletic apparel from Vietnam.

Coming Up

• Nov. 29: Vietnam exports
• Dec. 1: South Korea exports
• Dec. 5: U.S. trade balance

To contact the editor responsible for this story: Michael Arnold at marnold48@bloomberg.net, Zoe SchneeweissCraig Stirling

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