Trump’s tariff tantrums and how they will affect Hong Kong and China
By Hugo Novales
Shortly after beginning his second term as President of the United States, Donald Trump initiated another trade war and hit China with tariffs of 145%. China retaliated with 125% tariffs on US goods, before both countries declared a 90-day truce. The truce is expected to end on August 10th while agreements with the US’ other global trade partners must be made by July 8th — just next week. The US and China announced a trade deal in late June, but few details came out, other than an agreement to resume sales of Chinese magnets and rare earths to the US.
In her opening remarks at an FCC Club Lunch discussing US-China trade and how it may affect Hong Kong, Karen Koh remarked that anything her panel talks about may quickly become old news.
“Whatever you hear today may be out of date next week, simply because we don’t know what Mr. President is going to say week to week,” she said, commenting on the constantly in flux nature of President Trump’s decision-making.
Koh, now the First Vice President of the Club, then turned to her two panellists and asked if they could predict the future of American trade with the rest of the world.
“I think nobody really knows,” said Irina Fan, the Director of Research for the Hong Kong Trade and Development Council.
Fan explained how it takes many years, and sometimes decades, for trading partners to form agreements. Trump’s tendency to change his policies on a daily basis threatens economic stability between the US and China, as well as the rest of the world that will also have to maneuver around such steep tariffs.
However, the intended goal behind Trump’s actions isn’t clear to Fan. To her, Trump’s new wave of economic policies may not actually have any economic goal in mind, but they may rather serve ulterior (and perhaps political) purposes.
“What we’ve seen from the massive tariffs announced by the new president, to me, from an economist point of view, it doesn’t make any economic sense,” she said, citing how US consumers will feel the burden from Trump’s tariffs the most with a minimum 2.2% increase on prices and no federal strategy to offset costs.
When it comes to how Hong Kong will manage its trade relationship with the US, Fan reminded the audience that exports to US make up only 6.5% of Hong Kong’s total exports, and it’s easy for HK exporters to get growth from other markets.
Also, the city still has over 50 trade offices around the world, and will plan to diversify. While the Hong Kong Dollar is pegged to the US Dollar (US$1 = HK$7.84903), the city has plenty of other trade opportunities to keep business thriving.
“Probably, we can plan ahead with other markets,” Fan said.
Cameron Johnson, the second panellist, has spent his career — and the majority of his life — in mainland China and the US. As a supply chain expert based in Shanghai, Johnson is able to meet with policy makers in Washington DC and see both sides of trade negotiations. To him, tariffs are just another aspect of Trump 2.0 that everyone will have to live with.
“I think the reality is [that] tariffs are here to stay. It’s just a matter of how high they are. There will always be some form of global tariffs,” Johnson said.
He also addressed the spending habits of Chinese citizens under Trump’s new tariffs. Unlike US consumers who will soon face the economic burden of Trump’s trade war, the average Chinese person still has a high amount of spending power — except they’re not spending at all.
“The assumption that Chinese will spend like Americans is ridiculous. Chinese will never spend like the West. They’ll just never do it, and consumption is very much in the eye of the beholder,” he said.
Johnson clarified that lack of Chinese consumption isn’t related to inflation or rising costs of living, but can be attributed towards Chinese cultural attitudes that value getting more for less. He referenced trends of younger Chinese traveling on vacations and making competitions out of who could spend the least amount of money.
While Chinese economists are looking to create new initiatives to encourage domestic consumption, Johnson reassures that the lack thereof isn’t an indicator of economic decline or struggle due to all these new potential tariffs.
“The restaurants are okay. People are traveling. The numbers are all up. They’re just not spending,” Johnson said.
To watch the full discussion, please visit the FCC’s YouTube channel:
