Trump Says Will Revoke Hong Kong Special Status, Reviews China NYSE Listings

President Donald Trump said he will revoke Hong Kong’s special status with the United States, including a reversal of tariff benefits and the potential for sanctions against Chinese and Hong Kong authorities in Hong Kong.

Trump said he would order his Administration to “revoke preferential treatment for Hong Kong as a special customs and travel territory from the rest of China” and asked said he was ask Treasury to sanction Chinese government and some Hong Kong officials directly or indirectly involved in the “eroding of Hong Kong’s freedoms. Our actions will be strong and meaningful.”

(The Global Times is going to go bonkers.)

The iShares MSCI Hong Kong (EWH) actually rose on the news.

The outcry over Hong Kong became front and center again this week when the National People’s Congress, the legislative body of the Chinese Communist Party (CCP), announced a new bill that would unify certain national security rules with Hong Kong. Protests erupted instantly even though the bill is not fully ready to be implemented. Some see it as an end-around the failed extradition bill last year.

Trump called it a violation of Hong Kong’s Basic Law, a constitution that was part of the British handover of Hong Kong to China in 1997. That Basic Law expires in 2047.

“It diminishes the city’s long standing status,” he said. “It’s a tragedy for Hong Kongers. China extends its reach of its state security apparatus into Hong Kong” with this law, once passed, he said, adding that the U.S. wants an open, transparent relationship with China but would defend its national interests and values.

He said the U.S. and the world was currently living through China’s lack of transparency in regards to the pandemic health emergency. Washington blames China for not being forthcoming with details about a new SARS like virus when it was first discovered by doctors in Wuhan, the global epicenter of the virus, back in December.

Some doctors were jailed and later released by a Chinese court for “rumor mongering” about the new virus. Beijing later fired numerous city officials for their handling of the outbreak. Provinces in China often act as little fiefdoms separate from the orders and watchful eyes of Beijing.

Trump said China pressured the World Health Organization to “mislead the world” on the viruses human-to-human transmission, and for its punishment, the president said that on his watch the U.S. would no longer be sending the Organization billions to help fund scientific research and other programs. The U.S. is getting out.

“If Hong Kong gets classified as the same as mainland China, and if Hong Kong matches any U.S. trade action, U.S. exporters may be more affected, especially when it comes to agricultural products,” says Cliff Zhao, a strategist for CCB International in Hong Kong.

Hong Kong is the seventh-largest importer of U.S. agricultural products.

Over the longer term, the impact to the U.S. of Hong Kong losing its special status primarily concerns corporate investment.

Over 1,300 companies have operations in Hong Kong. Foreign direct investment in Hong Kong totaled $82.5 billion in 2018, representing 1.4% of total U.S. FDI.

Damage to business interests would likely be significant if restrictions are imposed. In worse case scenarios, U.S. banks might be required to withdraw from Hong Kong.

Trump addressed the press for about five minutes but did not take any questions despite reporters trying to ask him some as he walked away.

During the presser, Trump reiterated that the government agencies in charge of financial securities regulations would be looking at China companies listed on Wall Street to see which ones are putting American investors in the way of “hidden and undo risks” due to the fact that they are not audited the same way their U.S., and other emerging market counterparts are audited.

“China does not play by the same rules,” he says. “You can’t blame them. They have taken advantage of the rules given to them for a long time.”