New US-China trade war tariffs are ‘total war on commodities’ and will deal another blow to Hong Kong’s brittle economy, city’s commerce chief says

Denise Tsang

The US-China trade war has descended into “a total war on commodity trade” and new rounds of tariffs will deal a further blow to Hong Kong’s already fragile economy, the city’s commerce chief warned on Tuesday.

Secretary for Commerce and Economic Development Edward Yau Tang-wah’s warning was backed up by several business chambers, citing trickling orders from October following a 30 per cent decline in US orders at some mainland China-based Hong Kong manufacturers over the past year.

Yau said the city’s gross domestic product (GDP) in the third and fourth quarter of 2019 would face even bigger pressure after a new wave of tit-for-tat tariffs were due to take effect on September 1 and October 1.

“Some economists had predicted the trade war would cut 0.1 to 0.2 per cent from Hong Kong’s GDP last year, but it was hit even harder,” Yau said after meeting about 10 chambers on Tuesday.

“The direct impact of the new wave of tariffs may be smaller in the initial phrase, because of the marginal increases and additional coverage, but the indirect impact and collateral damage will certainly be no less than last time.”

Hong Kong is on the verge of slipping into a technical recession. Photo: Roy Issa

Hong Kong is on the verge of slipping into a technical recession if the GDP drops again between July and September, following a 0.4 per cent decline in the second quarter from the preceding quarter.

Federation of Hong Kong Industries chairman Daniel Yip Chung-yin said the business body’s members reported a 30 per cent decrease on American orders in the past year and expected very poor sales starting from October.

“Even during the peak sourcing season between July and September, the business flow has been very weak,” he said. “Our members conclude that in 2020, our products can no longer be made in China.”

He added there were no signs yet of companies shutting down or laying off employees in the city because of the trade war.

Yau said Washington’s decision to raise and impose tariffs on all Chinese goods meant a total war in terms of commodity trade.

Hotels in Hong Kong may also suffer because of fresh rounds of tariffs in the US-China trade war. Photo: David Wong

China said last week it would levy retaliatory tariffs of 5 to 10 per cent on US$75 billion worth of US goods. The Trump administration responded by announcing a tariff rise from 25 to 30 per cent on US$250 billion of Chinese goods, and from 10 to 15 per cent on US$300 billion worth of products.

Yau said trade between the US and China through Hong Kong accounted for 9 per cent of the city’s total last year. The city is shielded by the US-Hong Kong Policy Act – a special arrangement enacted in 1992 that differentiates the city from mainland China.

Chinese Manufacturers’ Association president Dennis Ng Wang-pun said: “There is also an indirect impact on hotels, the service sectors and conventions and conferences held in Hong Kong.”

He added manufacturers had started outsourcing orders to factories outside China or set up production bases abroad to avoid the tariffs.

The city’s exports fell 5.7 per cent in July and 3.9 per cent in the first seven months of this year from the same period last year.

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