April 15, 2025
HONG KONG – Hong Kong has not been spared in the tariff crossfire between US President Donald Trump and China, but “the sky will not fall” in the city thanks to its unique advantages, according to a senior Chinese official.
Mr Trump has slapped up to 145 per cent tariffs on imports from China, including Hong Kong, despite the city’s status as a free port, where goods are processed and pass through without being taxed.
The development has sparked fear among Hong Kong’s business community, but the financial hub with an open economy has opted not to hit back with tariffs of its own – in stark contrast to Beijing, which has retaliated blow for blow so far.
Officials have spoken up repeatedly to reassure businesses and investors after Hong Kong’s benchmark Hang Seng Index fell off a cliff when the initial round of new tariffs was first announced on April 3.
“Hong Kong is fully capable of riding out the storm,” Mr Huang Jingrui, a spokesman for the Chinese Foreign Ministry arm in Hong Kong, wrote in a letter published in the city’s flagship English-language newspaper, the South China Morning Post, on April 9.
Financial Secretary Paul Chan on April 13 reiterated that Hong Kong would remain a free port and continue to keep its doors wide open for global businesses, investment and talent in these turbulent times.
“Hong Kong can break new ground amid the changing landscape, as long as people stay united and do their best,” Mr Chan wrote in his weekly blog.
Hong Kong’s status as a free port and a separate territory under China’s “one country, two systems” framework gives it leeway to decide how to respond to the aggressive US tariffs, potentially cushioning some of the impact on the city.
Under the framework, China has promised the city a high degree of autonomy that lets it retain its own economic and administrative systems.
Hong Kong’s mini-Constitution, the Basic Law, obliges it to be a separate Customs territory from mainland China; pursue a free trade policy that safeguards the free movement of goods, assets and capital; and not impose any tariff “unless otherwise prescribed by law”.
Under this policy, products that flow through the city are not subject to Customs taxes, while import and export licensing is minimal.
So although the US in its tariff plan now regards Hong Kong as one economic entity with mainland China, the city under the “one country, two systems” principle is not required to respond in line with Beijing’s retaliatory actions.
The impact of the US tariffs on Hong Kong is hence expected to be less severe than that faced by mainland China, global supply chain management expert Christopher Tang told The Straits Times.
Not having to hit back against the US with its own tariffs allows the city to “continue to import more goods from the US without making Hong Kong importers and residents pay for the extra tariffs”, said Professor Tang, from the University of California, Los Angeles’ Anderson School of Management.
This matters as Hong Kong imports more goods from the US than the latter imports from the city.
The US had a US$22 billion (S$29 billion) trade surplus with Hong Kong in 2024.
The city’s top US imports include electronics, machinery, precious stones and various types of food. Its main exports to the US include electrical equipment, works of art, watches, textiles and footwear.
There has been talk that US goods might become cheaper in Hong Kong than on the mainland, potentially spurring mainlanders to visit and spend in Hong Kong.
This might boost tourism and retail, although it is not likely to be significant.
“Hong Kong’s diversified trade with other economies also serves as a crucial buffer against the US tariffs,” Prof Tang said, adding that Hong Kong’s exports to the US accounted for just 6.5 per cent of the city’s total exports.
This compares with mainland China’s exports to the US, which account for some 15 per cent – about one-sixth – of the Chinese economy’s total exports.
Hong Kong’s free port status and strong global trade networks will help the city as it diverts some trade ties away from the US to other countries, although the results will take time to become evident, said political scientist Sonny Lo.
“The affected Hong Kong SMEs (small and medium-sized enterprises) will need to immediately re-orient their businesses to non-US companies, but finding new markets and finalising fresh ventures take time,” said Professor Lo, who is with the politics department at the University of Hong Kong.
“They will need at least a year or two to absorb the sudden shock of the high US tariffs. The situation may be better for bigger firms, but the adaptation process will be very painful, particularly for the SMEs.”
The groundwork laid in countries along China’s Belt and Road Initiative global infrastructure development strategy could become more significant to the Hong Kong business community as they pivot away from the US market, the academic said.
He urged the Hong Kong government to introduce longer-term strategies to help local SMEs navigate their changing business landscape beyond just temporary financial measures or subsidies.
The government on April 14 said the city would cope with the US tariffs through strategies that include working with nearby ports to jointly develop new cargo sources, and exempting import and export licensing requirements for some goods to attract more transhipment cargo to the city.
Choosing not to retaliate against the US tariffs benefits Hong Kong economically, according to Prof Lo, as “some overseas firms may – after an initial wait-and-see period – relocate their branch offices to the city to take advantage of its free port, low taxes and proximity to mainland China”.
Hong Kong’s role as a platform for mainland companies going global will also gain importance as Chinese enterprises develop an urgency to seek new partners abroad, he added.
Mr Trump’s trade tariffs and the retaliation they have provoked from China weigh on an already sub-par global economy.
He sowed further uncertainty and confusion after he suggested on April 13 that consumer electronics reported over the weekend to be exempted from the tariffs would receive “no exception” after all.
He also announced on April 9 a 90-day pause on the tariffs for all countries except China.
Investment banking firm Natixis’ senior economist Gary Ng said Hong Kong’s free port status “offers some opportunities, such as attracting mainland Chinese consumers to buy American products or US firms to establish a presence in Hong Kong to bypass tariffs”.
“But it will not be enough to cover the losses if the US-China relationship continues deteriorating, which may also affect global trade volume,” he warned.
The American Chamber of Commerce in Hong Kong on April 14 said it found the city’s predicament under the new US tariff regime “unfortunate”. “A nuanced approach that acknowledges Hong Kong’s unique status and its critical role in global trade is essential for fostering cooperation and economic growth for this region,” it said.
Magdalene Fung is The Straits Times’ Hong Kong correspondent. She is a Singaporean who has spent about a decade living and working in Hong Kong.