Chairman's Desk
War Drums are Deafening

A full-scale trade war is looking increasingly inevitable between the United States and China. Hong Kong will almost certainly suffer from collateral damage. 

Washington and Beijing have been exchanging punches at increasing speed and weight. On 4 April, Washington announced additional tariffs on US$50 billion of Chinese goods. Beijing quickly responded with its own tariffs on US$50 billion of U.S. goods. U.S. President Donald Trump raised the temperature further on 5 April when he called for additional tariffs for another US$100 billion of Chinese goods. 

The official list of 1,300 products – ranging from aluminium to vaccines – so far released by the U.S. is subject to a public consultation. It will be around two months before any new tariffs come into effect. So we still need to wait and see what actually happens. 

But what we can say is that a trade war will not benefit either the U.S. or China, particularly not companies or consumers in the U.S.

Many "Made in China" products are actually produced for U.S. companies because they are too expensive to produce at home. Net of the import of raw materials and components from the U.S. and other countries to produce finished goods, the value add retained in the Chinese economy is much lower than promoted by politicians. 

On the other hand, raising tariffs to "encourage" production based overseas to return to the U.S. is a double-edged sword, at a time when the unemployment rate in the U.S. is already so low. Plus, it will not change the fact that it is still expensive to manufacture these goods in the U.S.

Another major concern is that a trade war – and the rhetoric that often accompanies it – will encourage the spread of anti-foreign sentiment. Trump's protectionist talk proved a vote-winner, which may embolden populist politicians in other countries around the world to do the same. 

If a trade war between the two biggest economies does break out, it would certainly have an impact on businesses globally. Economies that are only just recovering after the financial crisis could easily fall back into recession.

Hong Kong, in contrast, has been enjoying robust growth in recent years. But as an open economy, we are very vulnerable to global events. 

At the Chamber, we are naturally very concerned about the impact on local companies. A trade war may well increase costs, and introduce a great deal of uncertainty. 

We would like to hear from our member companies on how these tariffs will affect your business, and your views on how we can address the situation. This will help the Chamber, and in turn the HKSAR Government, to better understand the implications and formulate responses which hopefully might help mitigate the pressure on our businesses. 

Top