What China’s New National Security Law Means for the Special Trade Relationship between the U.S. and Hong Kong

By: Arya Koneru

Hong Kong Skyline

Hong Kong Skyline

 

Hong Kong offers several international trade benefits that elevated the city to a prosperous financial and commercial hub. Over 1,300 American companies operate in Hong Kong, with more than 800 having a central office in the city. Companies are attracted to Hong Kong for a multitude of reasons, all stemming from its semiautonomous system of governance.

When the British relinquished their claim over Hong Kong to China in 1997, China pledged Hong Kong would retain autonomy under a “one country, two systems” understanding. However, China’s controversial new national security law, which infringes on freedom of speech, press, and assembly, threatens this autonomy. The new law came into effect on June 30, 2020, one hour before the twenty-third anniversary of Hong Kong being transferred back to China. The new law eliminated many of the freedoms residents of Hong Kong were afforded, leaving many countries, including the United States, to question if Hong Kong should retain its special trade status.

Hong Kong’s autonomous status is essential to its special relationship with the United States. Hong Kong is a vital trade partner of the United States, with the $26 billion trade surplus in goods the highest among American trading partners in 2019. Several benefits stem from this special relationship. The U.S. dollar can be freely exchanged with the Hong Kong dollar, with Hong Kong having preferential treatment on trade, meaning no tariffs or other costs. Furthermore, Americans can visit Hong Kong without visas, making it an attractive place to conduct international business.

These benefits, however, are coming to an end as the new national security law demonstrates China’s increasing influence in Hong Kong. In response, the U.S. Congress unanimously approved the Hong Kong Autonomy Act in early July 2020. The act requires sanctions to be placed on foreign individuals and banks that comply with China’s oppression of Hong Kong. While the act condemns China’s actions, the security law will remain in place for the foreseeable future. Thus, the United States must weigh the cost of maintaining a special relationship with Hong Kong.

Removing the special status will subject Hong Kong to the same American trade restrictions placed on China, meaning high tariffs on Hong Kong’s exports. This will negatively affect American consumers, as prices of goods will inevitably increase. American businesses in Hong Kong will also suffer if the special status is revoked. In addition to having to comply with higher tariffs, American businesses in Hong Kong may lack access to particular American technology. Recently, the State Department announced it will end exports of American military equipment to Hong Kong, while the Commerce Department will impose controls on certain technology exports. These steps are a slow progression into ending the special relationship with Hong Kong and significantly altering United States trade law in the process.

As Hong Kong is used as a pawn in the trade war between China and the United States, the United States increasingly harms American interests by imposing more restrictions on trade in Hong Kong. While the special relationship between the U.S. and Hong Kong certainly must be re-evaluated, the United States must remember it has more to lose than China by drastically changing its relationship with Hong Kong.

 

Arya Koneru is a second-year law student at Wake Forest University School of Law. She holds a Bachelor of Arts in both Asian Studies and International Relations from the University of Texas at Austin. Upon graduation, she intends to practice immigration or international law.