New Chinese Law Could Lead to US Trade Restrictions, Export Controls Against Hong Kong

A new law being considered by China’s National People's Congress could trigger U.S. export controls and cause the U.S. to revoke Hong Kong’s special customs status, said Jude Blanchette, a China expert at the Center for Strategic and International Studies. The new national security law, which is expected to be proposed during China’s current NPC session, would criminalize “treason, sedition and secession,” Blanchette said, and will likely cause the U.S. to enact measures under the Hong Kong Human Rights and Democracy Act, which passed in November 2019 (see 1911290012).

“I think you’ll see the Trump administration move aggressively to react to this,” Blanchette said during a conference call with reporters May 21. President Donald Trump said the U.S. will “address that issue very strongly.”

If Secretary of State Mike Pompeo certifies that the new law infringes on human rights in Hong Kong, the U.S. would be authorized to remove Hong Kong from receiving special customs and trade treatment. Blanchette said the law could also lead to increased export controls on technology shipments to Hong Kong, similar to controls imposed on China. The U.S. could decide to “treat Hong Kong in every single way exactly as we treat mainland China,” Blanchette said. “That would include things like export controls on technology. That would include all the tariffs that we have on board.”

The U.S. can also decide to pick and choose which restrictions to impose against Hong Kong, Blanchette said. “There are various elements that the U.S. can tweak,” he said. “It can leave on many of the protections or unique status that Hong Kong has and put in place some others. This is really a menu of options that the United States would have.” If the Chinese law is passed, U.S. industry should expect the U.S. to impose at least some type of additional trade restrictions on Hong Kong, Blanchette added. “This is about as aggressive a move as Beijing could have made,” he said. “I don’t see much room here for the Trump administration to now come out in this report and say, yeah, ‘Hong Kong has received the requisite amount of autonomy, so we’re going to certify that [under the Hong Kong Human Rights and Democracy Act].’”

The law will lead to protests in Hong Kong, said Scott Kennedy, a senior China economics expert at CSIS. And if the U.S. enacts trade measures against Hong Kong, that will lead to retaliation from China, Blanchette said, which is still formulating countermeasures to recently announced U.S. export restrictions on foreign semiconductor shipments to Huawei (see 2005180032). “Beijing is right now very, very sensitive to anything that appears that the U.S. is mucking around in internal politics, so the reaction is likely to be fierce,” Blanchette said. “The reaction, I think, is going to be pretty furious if we move forward with this.”