US weighs options to 'punish' China over Hong Kong; sanctions likely

Among the likeliest early steps could be sanctions against Chinese officials, govt and companies involved in enforcing the proposed legislation, which has triggered street protests in Hong Kong

The Trump administration is crafting a range of options to punish China over its tightening grip on Hong Kong, including targeted sanctions, new tariffs and further restrictions on Chinese companies, according to US officials and people familiar with the discussions.

Such moves could mark the opening salvoes of the US response as President Donald Trump weighs how far he is prepared to go after the State Department's assessment on Wednesday that Hong Kong is no longer autonomous enough from Beijing to deserve special treatment under US law that helped make it a global financial hub.

Internal US deliberations, unfolding amid increased US-China tensions over the coronavirus pandemic, are continuing and final decisions have yet to be made, the sources said on condition of anonymity.

But they suggested that the severity of US measures could depend, at least in part, on the extent to which China's Communist Party rulers implement planned national security rules in the former British colony. Beijing says there is no threat to Hong Kong's high degree of autonomy and that it would counter any foreign interference.

 

Still uncertain is whether Trump would be prepared to deploy what has been called the "nuclear option" - stripping Hong Kong of its special economic status that the United States has conferred on it since the end of British rule more than two decades ago.

Among the likeliest early steps could be sanctions against Chinese officials, government and security entities and companies involved in enforcing the proposed legislation, which has triggered renewed street protests in Hong Kong and threatened the future of China's freest city, two people familiar with the matter told Reuters.
 

David Stilwell, assistant Secretary of State for East Asia, said the long list of potential US  responses could be "across the spectrum," including visa and economic sanctions. He declined to elaborate but said measures would be calibrated to mitigate the impact on Hong Kong people and US businesses there.

"They will be as targeted as possible to change behavior," Stilwell told reporters in a telephone briefing. "We're not hopeful that Beijing will reverse itself."

Another option under consideration would call for suspending Hong Kong's preferential tariff rates for exports to the United States, three sources told Reuters. Such action could put Hong Kong's goods under the same tariffs that Trump has slapped on exports from the Chinese mainland, they said.

Stricter with Chinese companies

The administration could also get stricter with Chinese companies that have set up legal counterparts in Hong Kong to take advantage of the territory's special status, by more closely auditing the registry of Chinese firms that trade on US markets, a US congressional aide said.

US businesses are concerned about any change in Washington's recognition of Hong Kong, where major companies enjoy access to China and Southeast Asia, and where bilateral trade flourishes across various parts of the economy, from wine to financial services. They also urged Trump to go slowly in responding to Bejing's planned imposition of new national security laws on Hong Kong, warning revoking the city's special US privileges will hurt the territory and its people.

Trump will have the discretion to scrap all of Hong Kong's privileges, some of them or none of them.

"We are going to do this in a smart way," Stilwell said. He declined to elaborate.

Among the ideas that have surfaced is that Trump could set a deadline, months or perhaps a year from now, for China to improve the political situation in Hong Kong or else face loss of its special status. But it was unclear if this notion has gained any traction.

It remains to be seen whether Trump, who has previously shown limited interest in human rights in Hong Kong or other countries, will now take a decisive stand on the issue.

Meanwhile, ome international financial firms have halted Hong Kong expansion plans and shifted staff to other Asian centers after protests in the city last year. A major change in Hong Kong's legal status could accelerate that trend, risk managers and consultants say.