HONG KONG • If the markets are any judge, US President Donald Trump's vow of "meaningful" action to strip some of Hong Kong's trade privileges has so far proved underwhelming.
Mr Trump's announcement last Friday did not give details or time frame for any actions, only that it would cover the full range of agreements between the US and Hong Kong with "few exceptions".
US stocks last Friday erased losses and traded little changed, with the S&P 500 Index rising 0.5 per cent at the close in New York. Hong Kong's Hang Seng Index yesterday saw gains of more than 3 per cent, led by the finance sector.
The risk was more evident later in the day, after Bloomberg reported that a phase one trade deal between the countries may be at risk after Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods.
S&P 500 Index futures traded 0.6 per cent lower, while US 10-year bonds erased declines.
Under the US-Hong Kong Policy Act of 1992, the president is empowered to suspend the territory's special trading privileges at any time through an executive order.
The law covers the entire relationship, from trade to recognising passports and rules that affect air travel, shipping and investment. It even allows for US dollars to be freely exchanged with Hong Kong dollars, which if revoked would amount to what some analysts have called the "nuclear option".
"We're not seeing a rush for the exits at all," Ms Tara Joseph, president of the American Chamber of Commerce in Hong Kong, told Bloomberg Television yesterday. "What we're seeing is everyone first digesting the news. And second of all looking at their footprint in Hong Kong and thinking through whether that ought to change."
Here are some of the key measures affecting trade that analysts are watching for.
Mr Trump could treat Hong Kong exports with the same tariffs as the mainland. The effect may be minimal - the territory exported US$4.8 billion (S$6.8 billion) last year to the United States, about 1 per cent of what China shipped over. Moreover, the US enjoyed a US$23 billion trade surplus with Hong Kong, meaning Mr Trump would be throwing away a win if the city takes any reciprocal action.
The US allows Hong Kong to import certain sensitive goods that are prohibited from China. This includes certain dual-use technology with consumer and military applications. Ending these privileges would make Hong Kong subject to the same export controls
SANCTIONS ON INDIVIDUALS
The president can sanction people who are responsible for undermining freedoms and autonomy in Hong Kong. The law specifically mentions blocking assets and revoking visas for people named by the president.
Those could include Hong Kong and Macau Affairs Office chief Xia Baolong, Mr Luo Huining, who leads China's Liaison Office in Hong Kong, and city officials like Chief Executive Carrie Lam.
SANCTIONS ON BANKS
US lawmakers are moving ahead with a Bill to penalise banks that do "significant transactions" with Chinese entities involved in suppressing Hong Kong's freedoms. This could effectively cut those banks off from the US financial system, with steps such as blocking foreign exchange transactions and dealings with US lenders or citizens.
This could do serious damage to China and Hong Kong's role as an international finance centre.