U.S. President Donald Trump has revoked Hong Kong’s special trade privileges – putting it on par with any other Chinese city as foreign trade is concerned – and signed the so-called Hong Kong Autonomy Act, which mandates imposing sanctions on China for promulgating the Hong Kong National Security Law. According to the Act, the U.S. administration has 90 days to identify Chinese officials to be sanctioned, and must impose sanctions on designated individuals and entities within a year. In its turn, China may impose sanctions on Senators Chris Van Hollen and Pat Toomey, the sponsors of the Act, House Speaker Nancy Pelosi, and others.
The executive order followed Secretary of State Mike Pompeo’s official determination in May that China has undermined Hong Kong’s autonomy to a degree that it is no longer different from any other Chinese city. The autonomy act requires “mandatory sanctions” against any foreign individual for “materially contributing” to the violation of China’s commitments to Hong Kong under the Sino-British Joint Declaration and the Basic Law, the city’s mini-constitution. The Joint Declaration prescribes that the city would enjoy a “high degree of autonomy” until at least 2047.

Existing punitive tariffs the U.S. imposed on the mainland will be applied to Hong Kong exports. License exceptions for exports and re-exports to the city and transfer within the mainland are revoked, while exports of defense items are banned. According to the U.S. Department of Commerce’s Bureau of Industry and Security, U.S. exports subject to export control and shipped to Hong Kong amounted to between USD400 million and USD500 million each year from 2016 to 2018, consisting mainly of telecoms and information security products and electronics. In the decade to 2018, the U.S. recorded an annual trade surplus of at least USD30 billion with Hong Kong, the highest among U.S. trading partners. But amid the trade war between the United States and China, the surplus fell to USD26 billion last year. Extradition agreements between Hong Kong and the U.S. will be suspended.

The EU is also preparing sanctions on China, but EU foreign policy chief Josep Borrell said nothing specific had been decided. The EU extended the EU’s ban on exports of sensitive technology to Hong Kong. But analysts said that with each member having its own interests in relation to China or the U.S., and having different views about Hong Kong issues, it would be difficult to reach a consensus on whether to impose heavy sanctions on China, with likely opposition from Hungary and Greece. Sweden, Denmark and the Netherlands on the other hand, are likely to exert pressure to push the EU to be tough on China. German Chancellor Angela Merkel said that the new national security law for Hong Kong is no reason for the European Union to sever dialogue with China. “It is important that EU member states are trying to find a common policy toward China and a common answer,” Merkel said during a press conference with Italian Prime Minister Giuseppe Conte. Apart from an export ban on “sensitive technology” to Hong Kong, Borrell said EU governments could also review their extradition agreements with Hong Kong, review travel advice, increase scholarships for Hong Kong students and offer more visas to Hong Konger citizens. EU Ambassadors stressed the likely steps would not amount to economic sanctions.

The U.S. also imposed sanctions on some Chinese officials it alleges are involved in human rights violations in Xinjiang. One of them is Politburo Member and Xinjiang Party Secretary Chen Quanguo. China retaliated by imposing its own sanctions on Members of the U.S. Congress, including Marco Rubio and Ted Cruz, considered to be “China hawks”. The sanctions include restricting visas and freezing properties.

Meanwhile, as a result of the Covid-19 pandemic, Hong Kong is suffering as a tourist market. Hong Kong tourist arrivals enjoyed a mini-revival in June with 80% more visitors than the previous month, but that was still nearly 100% down on 2019. Latest figures from the city’s Tourism Board showed that 14,600 people visited last month, compared with 8,100 in May. June’s numbers represented a 99.7% year-on-year drop. Overall in the first six months of the year, arrivals were down 90% at 3.52 million from the same period in 2019. With Hong Kong now battling a third wave of coronavirus infections, and with stricter social-distancing measures in place, the Board was forced to postpone a campaign designed to boost the flagging industry by encouraging residents to spend and travel locally. “The tourism industry remains in winter,” Lawmaker Yiu Si-wing said. “We don’t see any light at the end of the tunnel yet.” Although all but three border checkpoints with mainland China remained closed, 18% more mainland visitors, or 6,633 people, crossed the border into the city in June, compared with May. The number was down 99.8% from the same period last year, the South China Morning Post reports.

In a move that would make Hong Kong less attractive to mainland Chinese professionals, China’s Tax Administration has decided to start taxing the income of Chinese citizens worldwide. This means that Chinese nationals working in Hong Kong are now facing a tax rate of as much as 45%, compared with the previous 15%. Some are considering moving back to mainland China or applying for a Hong Kong passport if they have lived in the city long enough to qualify. Hong Kong has granted more than 340,000 immigration visas to people from mainland China over the past five years.