Originally published on November 22, 2019 by TraderStef at CrushTheStreet.
U.S. trade relations with China may devolve from the “Phase-1” agreement announced on Oct. 11 to a full-blown return of tit-for-tat tariffs. In response to the escalation of unrest in Hong Kong after nearly six months of anti-government protests, the U.S. House passed the Hong Kong Human Rights and Democracy Act on Nov. 21, which previously moved through the Senate with unanimous consent. Lawmakers on Capital Hill say they believe the legislation serves as a warning to Hong Kong and Chinese authorities that any deterioration of Hong Kong’s independence or violent response to the protests will have consequences. The legislation is now on its way to the President’s desk to veto or sign.
In a phone interview on “Fox & Friends” this morning, the POTUS said that unrest in Hong Kong is “a complicating factor” (fast forward to timestamp 41:28) for trade negotiations between the U.S. and China and that he was responsible for influencing China’s President Xi Jinping to avoid violent confrontations with protestors or infringe upon Hong Kong’s independence. Keep in mind that shortly after unrest began in June, thousands of Chinese military troops deployed to a city near the Hong Kong border.
“We have to stand with Hong Kong but I’m also standing with President Xi… If it were not for me, thousands of people would have been killed in Hong Kong and you would have a police state… The only reason he’s not going in is because I’m saying it’s going to affect our trade deal.”
At the same time, elections are now taking place in Hong Kong that may tip the scale of power within the administration of its government.
Hong Kong election a referendum on anti-government protests… “The election for the 452 seats on the city’s 18 district councils usually gets little attention but this year has shaped up as a pivotal battleground for protesters anxious to seize the ballot box to legitimize their cause.” – Detroit News, Nov. 22
The legislation passed on Capital Hill this week covers a few points that will influence trade negotiations if the POTUS signs it, and a veto by the POTUS would be void with a return vote in the Senate. The act requires that the State Department annually certify that Hong Kong is sufficiently autonomous from mainland China to continue its designation as a separate trade entity. The Trump administration has import taxes on $360 billion in goods from China and threatens to impose additional tariffs if “Phase 1” of the trade negotiation fails to materialize for any reason.
The Chinese regime wasted no time in expressing their resentment of the legislation on Capital Hill. The Foreign Ministry issued a very strong statement:
“The U.S. bill disregards the facts, confuses right and wrong, violates the axioms, plays with double standards, openly intervenes in Hong Kong affairs, interferes in China’s internal affairs, and seriously violates the basic norms of international law and international relations. The Chinese side strongly condemns and resolutely opposes this… At present, what Hong Kong faces is not the so-called human rights and democracy issues, but the issue of ending the storms, maintaining the rule of law and restoring order as soon as possible… This bad behavior of the United States not only harms China’s interests, but also undermines the important interests of the United States itself in Hong Kong… If the US side is willing to go its own way, China will surely take effective measures to resolutely counteract and firmly safeguard national sovereignty, security, and development interests.” – Zerohedge, Nov. 20
An unnamed foreign ministry representative in the Hong Kong office lashed out at the U.S. legislation with “Don’t say I didn’t warn you.” That phrase is historically used by Chinese authorities as a threat of warfare and has only been used three times in the past: in May, during the escalation of trade tensions with the U.S.; before the 1962 war with India; and prior to the 1979 invasion of Vietnam. Editorials with the state-run newspaper China Daily described the U.S. legislation as “a piece of waste paper.”
The verbal lashing from China brings to mind what I wrote in “China: You Want A Trade War, Bring It On,” published on May 15, and Part 2 published on Jun. 29.
“A history of ‘barbarian handling’ influences China’s CCP leadership, which is a tradition of making adversaries become dependent on their economic largesse, subsequently pressuring foreign leaders to shift over to their value systems. The practice prejudices the CCP to see other nations as hegemonic or a vassal state instead of coequals and pushes them to create economic dependence so they can manipulate foreign elite opinions to view Chinese power as advantageous. Those practices result in CCP anxiety that they are always facing the threat of surrender or domestic political disunity. Too many corporate entities and foreign executives that benefited from the boom in China did not seriously consider the downside risks. The CCP was clearly engaging in abusive trade practices for a very long time, and U.S. leadership failed to do anything about it, all the while China had its cake and ate it while ignoring trade rules, laws, and contracts. China has a severe sensitivity to the thought of being pushed around and is unlikely to adapt to a premise that it should behave like everyone else… What is missing from discussion in the Western media is China’s motivation and perspective based on their history, as they appear not to accept that economic integration with other countries through globalization has consequences and will inevitably weaken national sovereignty.”
With so much at stake and subsequent stock market volatility due to every headline pushed across your news feed concerning the trade war, it is prudent to stay on your toes and consider the following articles:
Investors should not underestimate Hong Kong as a big risk – MarketWatch, Nov. 19
The Case For Moving Supply Chains Out Of China – WarOnTheRocks, Nov. 18
Global Growth at Decade-Low & WTO Warns “Doomsday Scenario” – Zehohedge, Nov. 21
Chinese army puts on show of military might for President Xi Jinping:
Plan Your Trade, Trade Your Plan
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