Cushioning headwinds

Hong Kong found itself at the heart of a seismic shift as dignitaries and business leaders from the world's two largest economies gathered in the city just days after Donald Trump scored a resounding victory in the United States presidential election in November.

Their mission was to tackle the seemingly impossible task of bridging deep-seated Sino-US misunderstandings amid heightened political fragmentation.

In the words of Craig Allen, president of the US-China Business Council, both countries are profoundly entangled economically, and pulling that apart would be very difficult and costly. "But that doesn't mean that politics will lead us in that direction," he told the US-China Hong Kong Forum, attended by envoys, politicians and financial pundits.

According to China's official data, unveiled in November, the value of trade between it and the US surpassed $560 billion in the first 10 months of this year, with over 70,000 US companies operating in the world's second-largest economy, generating $50 billion in profits annually.

However, the likelihood of increased protectionism promoted by Trump presents a "great risk", said Stephen Roach, a senior fellow at Yale Law School. As part of Trump's "America First" nationalist agenda, the billionaire Republican once vowed to jack up tariffs on all imports coming into the US from zero to between 10 to 20 percent, and boost those on Chinese products to 60 percent. The president-elect also announced recently he would slap 25 percent tariffs on all imports from Canada and Mexico, with an additional 10 percent on Chinese goods.

Roach warned that problems associated with the new US policy would invite retaliation from all US trading partners. The International Monetary Fund has also cautioned that the introduction of higher tariffs on a significant portion of global trade by the middle of next year could lower global growth by 0.8 percent in 2025 and by 1.3 percent in 2026.

During his first term as US president, Trump raised tariffs on Chinese imports from three percent in 2018 to 19 percent, and these are still in force. Some pundits have suggested that Trump might not be serious enough to press ahead with his renewed tariff threats, but Roach gave a heads-up at the Hong Kong forum that China and the world have to take Trump more literally this time.

The Hong Kong Special Administrative Region, long seen as China's entrepot and offshore financial hub, has to bear the brunt across the economic spectrum. "Trump 2.0 will affect exports from the Chinese mainland and, by extension, Hong Kong's position as a transshipment hub," said Chim Lee, senior analyst at the Economist Intelligence Unit. These developments will impact Hong Kong's already weak consumer and business sentiment, and therefore consumption and investment activities, especially in the transport and logistics sector, he added. More broadly, as happened after US tariffs were enforced in 2018, the current threats could be a harbinger of fresh trade frictions. "For most economies, we can probably expect slightly increased dependence on partners, other than the US, for trade," said Adam Ahmad Samdin, an assistant economist at Oxford Economics. "If higher tariff rates are applied on China, we can also expect more supply chain reshuffling, much to the benefit of other economies like Vietnam."