The Trump style of governance by social media makes it a very effective way to play out his Art of the Deal techniques, for example, this is his announcement of the latest rules overnight, from his Truth Social post:
By throwing his weight around, initially with Canada and Mexico, then with EU, and now with rest of the world, it shows how powerful the US, as what I would call ‘the global consumer of last resort’, can really force agenda changes around the world, and how so many other countries buckled immediately (see updated response column):
Not only is Trump quick to mount his assaults, he is equally rapid in retreating, hence today’s latest round of 90-day suspension reversal:
By throwing his weight around, initially with Canada and Mexico, then with EU, and now with rest of the world, it shows how powerful the US, as what I would call ‘the global consumer of last resort’, can really force agenda changes around the world, and how so many other countries buckled immediately (see updated response column):
Not only is Trump quick to mount his assaults, he is equally rapid in retreating, hence today’s latest round of 90-day suspension reversal:
The violent reactions in the market is a good indicator we are in unchartered territory on this tariff issue. And the policy flipflops in the US is also contributing to the volatility.
We will chronicle the recent progress in section 1, before assessing the new geopolitical reality and how it will impact HK assets.
Fast draw, quick fire, and swift win?
Sole push-back from PRC – may still end in a deal?
The only one remaining resistance to the US tariffs is China. And what an escalation it has been (article 2, 5):We are obviously worried this will escalate further, which will hurt everyone in the world, but are also quietly hopeful that rationality will prevail and a deal will eventually be struck. China does indeed have some powerful weapons in its arsenal, including:
a) dominant global trade position now – where it has the bulk of the international market as its partner, compared to the US, in other words, most other countries will suffer if they do not trade with China:
b) China’s large US treasuries holdings – some commentators worry about a sustained sale wreaking havoc on US’s debt and interest management:
But on closer inspection, CN’s holding of U$0.7trn of treasuries (red line above, is only 2.2% of total – red shade above), and even if they sold everything in one day, the impact would be less than 70% of the daily trade volume (black line below):
As a result we do not expect this as a meaningful lever to pull in the current trade dispute. The bigger worry should rather be how the rest of the world can keep increasing its appetite to accommodate the ever ballooning US treasury supply – now at close to $30trn a year in annual issues (bars in chart above).
c) RMB depreciation – basically for all countries facing tariff hikes, the easier route to offset (the obvious side effects of importing inflation aside), in fact, for low cost manufacturing nations, even triple digit tariffs may not result in manufacturing jobs shifting back to the USA (see article 7).
A likely outcome of the tariff war may well be the start of competitive devaluation to gain edge over other exporters. In the meantime, fast moving companies are already trying to beat the deadlines, but making dramatic moves like this:
d) escalation beyond trade – besides just tariff, both sides could get so entrenched as to start other forms of mutual sanctions, such as suggestion that US might delist PRC companies from US stock exchanges (article 6). This is where we worry most as the impact can spiral out of just trade, and hit many other sectors – eg the biggest risk to HK could be its open capital account needing access to the USD – in the most extreme case, could the HKD need to be depegged due to punitive measures from the US?
In fact smart US companies may already be plotting their exit of the HK/CN markets, and when sufficient proportions of the US corporate world have retracted (see article 4 where JP Morgan has sold its HK custody business), more severe sanctions would be much easier to be effected. Even countries are starting to view Chinese connection as a disadvantage, and siding with US in a potential geopolitical standoff (see article 1).
HK fundamentals – not too good either
Here are some factors that puts HK at risk and property prices on a downward bias:a) Trade still too important a sector – with import/export accounting 9% of all employment in HK (light blue line), any trade spat is likely cause disproportionate amount of harm to local jobs and spending:
Total export has been seen to drive HK’s rents, and with trade falling, rents could also weaken:
b) Strong USD to depress local consumption further – it is already well aired that HK consumers are now spending weekends and holidays in cheap currency neighbours given the strong USD of the last few years. In a competitive devaluation scenario, this trend will undermine further HK’s domestic consumption – eg RMB is already down to its weakest level since 2008!
c) massive public housing supply about to hit the market – Yep, whatever the private developers hold back in supply, the govt’s usual pro-cyclical public housing policy will come to wreck the party: look at how strong the red and blue bars will surge in the next five years to take total supply in HK to the highest level since 2001:
We can only say – good luck to home buyers…
What are the possible good news from this?
This tariff episode may have its bright spots, however, such as:– with tariff income, US can reform and abolish income tax as Trump promised;
– global markets cut domestic regulation / indirect taxes to appease the US, is structurally bullish for promoting free trade;
– China to launch massive credit easing to soften the blow => consumption spending up, trickle effect down to HK perhaps…
– HK and China both work harder to developer global South markets (article 3), opening up more diverse revenue streams in the process
=====================Article 1====================
Sino Chairman Robert Ng, Children Named Under Singapore Foreign Influence Law
2025/04/07 by Michael ColeSingapore is set to declare one of its wealthiest property tycoons and three of his children as “politically significant persons” under a law designed to prevent foreign meddling in the country’s politics.
[…]
https://www.mingtiandi.com/real-estate/people/singapore-names-sinos-robert-ng-under-foreign-influence-act/
======================Article 2===================
China sticks to its guns as fresh US tariff threat pushes tension to the brink
BEIJING/SHANGHAI, April 8 (Reuters) – China vowed on Tuesday to “fight to the end” against U.S. tariffs as some citizens railed against President Donald Trump after he singled out Beijing for further levies, setting the stage for a standoff between the world’s two largest economies.
[…]
https://www.reuters.com/world/china-says-it-will-never-accept-us-blackmail-escalated-tariff-threats-2025-04-08/
======================Article 3===================
Hong Kong eyes Southeast Asian, Middle Eastern business ties in next chapter of belt and road plan
William Yiu 17 Feb 2024Hong Kong will focus on business collaborations with Southeast Asian and Middle Eastern countries under the country’s belt and road plan, the head of the initiative’s local wing has said amid plans to launch a festival championing the scheme among residents.
[…]
https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3252271/hong-kong-eyes-southeast-asian-middle-eastern-business-ties-next-chapter-belt-and-road-plan
======================Article 4===================
JPMorgan picks HSBC, StanChart to run $500 bln custody business in Hong Kong, Taiwan
By Selena Li March 1, 2024HONG KONG, March 1 (Reuters) – JPMorgan Chase (JPM.N), opens new tab has selected HSBC (HSBA.L), opens new tab and Standard Chartered (STAN.L), opens new tab to operate its custody businesses in Hong Kong and Taiwan, with assets worth more than $500 billion, a spokesperson for the U.S. bank said.
[…]
https://www.reuters.com/business/finance/jpmorgan-picks-hsbc-stanchart-run-500-bln-custody-business-hong-kong-taiwan-2024-03-01/
======================Article 5===================
Beijing prepared for US tariff retaliation: Regina Ip
2025-04-08The central government is well prepared and has a broad arsenal to respond to any further tariff escalation by US President Donald Trump, according to Executive Council convenor Regina Ip.
[…]
https://gbcode.rthk.hk/TuniS/news.rthk.hk/rthk/en/component/k2/1799392-20250408.htm
=====================Article 6====================
Delist Chinese stocks from US indices? Trump administration says ‘everything’s on the table’
9 Apr 2025US’ Secretary of the Treasury Scott Bessent has said that “everything’s on the table” when it comes to removing Chinese companies from American stock exchanges, amid the ongoing tariff war between Washington and Beijing.
[…]
https://economictimes.indiatimes.com/news/international/global-trends/delist-chinese-stocks-from-us-indices-trump-administration-says-everythings-on-the-table/articleshow/120128240.cms?from=mdr
=====================Article 7====================
Trump’s tariff own-goal
David Webb 3 April 2025He apparently has no idea how much this will hurt US consumers and how little it will affect the trade deficit. Asian manufacturers and their investors can, to a large extent, sleep easy tonight.
[…]
https://webb-site.com/articles/trumptariff.asp
