Hong Kong's extradition bill could plunge it into the US-China trade war

Bobby Yip (Reuters)

• Hong Kong lawmakers are considering a bill that would allow extradition of residents to mainland China.
• Passing the law could lead to the US revoking Hong Kong's status as a separate customs territory, exposing it to tariffs on Chinese goods.
• It could also lead foreign companies to flee Hong Kong rather than risk ending up in China's legal system.
• However, America may hesitate to clamp down on trade with Hong Kong, as it ran a surplus of nearly $34 billion with the territory in 2018.
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Hong Kong lawmakers are considering a bill that would allow extradition of residents to mainland China. Passing the law could lead to the US revoking the territory's special commercial status, exposing it to tariffs.

Crowds of protesters gathered to oppose the legislation this week, fearing it would open the door to political opponents, journalists, and others being slapped with bogus charges, carted off to face justice in the Chinese legal system, and being forced to hand over private information and corporate secrets.

The US treats Hong Kong as a "non-sovereign entity distinct from China" under its "One Country, Two Systems" framework, according to the State Department. The agency has expressed "grave concern" about the extradition bill, warning it could erode Hong Kong's independence, business environment, and "long-standing protections of human rights, fundamental freedoms and democratic values," according to Bloomberg.

If Hong Kong passes the law and begins handing over Americans and corporate documents to the Chinese government, the Trump administration could respond by revoking its status as a separate customs territory, said the state department, according to Reuters. Without it, Hong Kong would be subject to US tariffs on Chinese goods, which could rise to 25% across the board if a trade deal isn't struck soon.

Foreign companies might also flee to other countries such as Singapore, said Michael Every, head of Asia-Pacific financial markets research for Rabobank in Hong Kong, according to Forbes.

However, America may think twice about stripping Hong Kong's special status given the pair's trade relationship. It exported $50.6 billion in goods and services to the territory in 2018, and imported $16.7 billion, meaning it ran a trade surplus of nearly $34 billion, according to the US Trade Representative. A trade war could lead to US companies paying significantly more to trade items such as electrical machinery and diamonds.