Former Top US Diplomat in Hong Kong Discusses Washington’s Responses to National Security Law

By Isabel Wong

With COVID-19 and military conflicts dominating headlines in 2020, the trade dispute between the US and China has been seen as something that belongs to 2019. Indeed, sources of tensions between the world’s two largest economies emerged in 2018, and the two nations spent a good amount of time last year going through trade talks, halting discussions, and more trade talks until they reached an initial phase one trade agreement. 

While trade tensions between Washington and Beijing are not perceived as the biggest immediate risk in 2020, China’s recent move to implement a national security law on Hong Kong has again ramped up tensions between the two countries. Under the United States-Hong Kong Policy Act of 1992, the US recognises the difference between Hong Kong and mainland China in its diplomacy, and treats the city a separate trade jurisdiction. The former British colony benefited from arrangements not enjoyed by mainland China in dealings with the US such as lower trade tariffs and a separate customs and immigration designation. 

But in retaliation for Beijing’s decision to impose a national security law on Hong Kong, US President Donald Trump has signed an executive order ending Hong Kong’s preferential trade treatment, and enacted a law to sanction individuals and banks deemed to have aided the erosion of Hong Kong’s autonomy.

“There is a very fierce debate going on within the United States policy community about whether the US is, in fact, entering a new Cold War with China as the opponent as opposed to the Soviet Union or whether the current situation is much different and considerably more complex where these two large and important countries will have to both get along at the same time that they compete with each other,” said Kurt Tong, former US consul general to Hong Kong and Macau in a recent Lynk Speaker Session ahead of the announcement made by Trump.

According to Tong, the aviation agreement between Hong Kong and the US as well as law enforcement cooperation agreements between the two could potentially be impacted in the process. “The [US] response to that national security law imposition has been very strong, very bipartisan,” Tong added.

The Peg is Safe…For Now

After the national security law was enacted in Hong Kong, undermining the Hong Kong dollar’s peg to the US dollar has been reported as an option that the Trump administration has considered as a response to punish China. 

Kurt Tong, partner of The Asia Group and former US consul general to Hong Kong and Macau. (Photo: Courtesy of Kurt Tong)

“The US Treasury Department, the Congress, and the White House can pass legislation that would implement rules which could make it difficult for banks operating in Hong Kong, be they Chinese banks or American banks, to participate in the US dollar payment system, the SWIFT system and the like,” said Tong, “in my opinion, that is very unlikely because of the magnitude of the effort involved. The peg is not a US policy, it’s not a policy that the US can change”. 

The Hong Kong dollar peg is the Hong Kong Monetary Authority’s unilateral decision to target a specific trading range between the Hong Kong dollar and the US dollar. According to Tong, in order to get the HKMA to no longer continue to peg, one needs to force the Hong Kong dollar to depreciate or be devalued through market pressure. 

“One would be gambling with global financial stability in the midst of a terrible global economic crisis in order to make a point to China about its mismanagement of Hong Kong governance,” added the now Washington-based former top American diplomat in Hong Kong.

Hong Kong’s Appeal to Remain

Less than a month into the enactment of the national security law in Hong Kong, foreign businesses, especially media organisations, are already expressing concerns over the city’s press freedom and getting work permits for their personnel. In response to that, the New York Times has announced it will move part of its Hong Kong office to the South Korean capital of Seoul.

“It’s creating problems already for some foreign enterprises, particularly in the social media or media area. Whether they’ll continue to be welcomed in Hong Kong or not is really unclear, and that could have a gradual snowballing effect in terms of the perceptions of the business community of Hong Kong as a desirable place to do business,” said Tong.

But Tong cited the inviolability of contracts signed in Hong Kong as one aspect that will continue to attract foreign businesses to operate in the city on top of the former British colony’s lifestyle, infrastructure and stable currency.

“It’s very important to have a sense that the judicial system [in Hong Kong] and rule of law are intact,” added Tong, “there are some specific legal risks created by the law itself. There are pieces in that law, if strictly implemented, would make it possible for foreign financial institutions to be punished under Chinese law for obeying US law”.

The conversation took place in the Lynk Speaker Session titled “Heightened Tensions: The Next Phase in US-China Decoupling” on July 8, 2020.

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