How Trump Could Quickly Raise the Stakes in Hong Kong

(Bloomberg) -- Pro-democracy protesters have flooded the streets of Hong Kong for weeks and even forced the airport to close, but U.S. President Donald Trump has largely avoided getting involved. That doesn’t mean he has no leverage. Under a U.S. law, Trump has the power to rescind Hong Kong’s status as a preferential trading partner -- essentially turning the Asian financial hub into just another Chinese city. Such a seismic shift would be an almost unthinkable escalation of the U.S.-China trade war, but some lawmakers in Washington have been making supportive noises.

1. What can Trump do?

When Britain handed Hong Kong back to China in 1997, the Chinese government pledged that the city would have a “high degree of autonomy” in its legal and economic affairs for 50 years, under an arrangement known as “one country, two systems.” On those terms, the U.S. agreed to treat Hong Kong differently than the People’s Republic of China for trade purposes under the United States-Hong Kong Policy Act of 1992. But the president can issue an executive order suspending that special treatment if the territory is deemed to no longer be “sufficiently autonomous.”

2. What would the impact be?

It would mean the U.S., the world’s largest economy, treating Hong Kong as any other part of China -- at a time when each side is slapping tariffs on hundreds of billions of dollars worth of goods. A commentary posted by the American Chamber of Commerce in Hong Kong said it would have a “chilling effect” on U.S. investment and trade in Hong Kong and send “negative signals” globally. “It’s pretty much the nuclear option against Hong Kong,” said Steve Tsang, director of the University of London’s SOAS China Institute. “It would be the beginning of the death of Hong Kong as we know it.”

3. Is Trump likely to act?

It’s unclear. His administration has shown a willingness to use unconventional tactics in its trade war with China, and the Hong Kong protests could provide a negotiating tool. Trump has sent mixed signals. He’s referred to the protests as “riots,” adopting the language used in Beijing, and suggested the U.S. would stay out of a domestic Chinese issue. He’s also said China was facing a “tough situation” in Hong Kong, but added “I’m sure it will work out. I hope nobody gets hurt, I hope nobody gets killed.” That was followed by a tweet explicitly linking the protests to the trade war.

4. Who wants Trump to act?

Numerous U.S. lawmakers have expressed concern about the extradition bill that set off the protests. House Speaker Nancy Pelosi, a Democrat, vowed in June to review U.S. trade ties if it passed, saying it would “legitimize and legalize” the kidnapping of executives and dissidents to the mainland. Senate Majority Leader Mitch McConnell, a Republican, said the extradition bill “is inconsistent with the Hong Kong Policy Act and puts Hong Kong on the path of becoming just another Chinese city subject to Beijing’s whims.” A bipartisan group of lawmakers including Senators Ben Cardin and Marco Rubio wrote to Trump on Aug. 1 saying direct U.S. security and economic interests were at stake.

5. What’s the official U.S. stance?

The 2019 annual U.S. report on Hong Kong said the city’s autonomy was “sufficient -- although diminished.” After the protests swelled in June, the State Department said that “continued erosion” of Hong Kong’s autonomy put its “long-established status in international affairs” at risk. The U.S.-China Economic and Security Review Commission has recommended that Trump assess whether Hong Kong should continue to be allowed to receive dual-use U.S. technology with consumer and military applications, such as carbon fiber used to make both golf clubs and missile components.

6. What does Hong Kong’s government say?

Hong Kong’s chief executive, Carrie Lam, has sought to reassure investors that the city still adheres to the rule of law and has an independent judiciary. She defended the proposed extradition law as a way to prevent Hong Kong from becoming a haven for fugitives and said it wouldn’t undermine business freedom. In July she declared the bill “dead” but has refused to formally withdraw it -- a key demand of the continuing protests. She also has backed the police and said the city risked sliding into an abyss. The Hong Kong and Macau Affairs Office in Beijing has repeatedly affirmed China’s support for Lam and the local police, but refused to rule out a military intervention.

The Reference Shelf

• More QuickTakes on Hong Kong’s status and the extradition law that spurred protests, the triads and China’s garrison in the city.
• Hong Kong faces ominous questions about 2047.
• Ben Bland at the Lowy Institute says China shouldn’t demonize Hong Kong’s radicals.
• The South China Morning Post on China’s push for extradition agreements.
• Hong Kong’s government on the case for the extradition legislation.

To contact the reporter on this story: Iain Marlow in Hong Kong at imarlow1@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Paul Geitner, Grant Clark

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