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What Trump’s move to treat Hong Kong the same as China could mean for the U.S.

For weeks, the Trump administration has signaled it would punish China for its passage of a new law that makes it a crime in Hong Kong to criticize China. On July 14, President Donald Trump announced the U.S. would end “preferential treatment for Hong Kong” and that the region “will now be treated the same as mainland China, no special privileges, no special economic treatment and no export of sensitive technologies.”

Until now, products imported from Hong Kong into the United States were not subject to the same tariffs and rules as products imported into the U.S. from mainland China. Trump said that products imported from Hong Kong to the U.S. will now be treated as if they were coming from any other Chinese city.

China’s National Security Law was passed to contain the protest movement in Hong Kong, which the Chinese government claimed was influenced by foreign governments and sought to gain Hong Kong’s independence from China. For over a year, demonstrators in Hong Kong demanded greater freedom and rights and an independent investigation into police brutality.

Some analysts believe Trump’s executive order sends a powerful symbolic message that will discourage companies from doing business in Hong Kong. “This shows the world is starting to isolate China,” according to Gordan Chang, author of The Coming Collapse of China. Chang says Hong Kong will “erode and wither away.”

However, other analysts believe the executive order will be counterproductive because it will push Hong Kong to become closer to China economically. At the same time, “there is not a lot of trade” between the U.S. and Hong Kong, and the executive order’s impact on trade is likely to be small, according to Kurt Tong, who served as the U.S. consul general and chief of mission in Hong Kong and Macau.

The United States only imports around $5 billion a year from Hong Kong, while it exports over $30 billion to the special administrative region, says Tong.

The executive order also seeks to terminate the Fulbright exchange program with Hong Kong. In 2020, there were 11 Hong Kongers who received Fulbright scholarships to come to the U.S. and 10 Americans went to Hong Kong, according to the State Department.

Tong said the U.S. terminating the Fulbright programs undermines its own interests. “It’s a terrible idea. We have Fulbright programs with countries we don’t like” because it helps them have a “more positive attitude,” Tong said. “So it makes no sense.”

Besides signing the executive order, Trump this week also signed into law “The Hong Kong Autonomy Act.” “This law gives my administration powerful new tools to hold responsible the individuals and the entities involved in extinguishing Hong Kong’s freedom,” the order read.

The new U.S. law provides the State Department and Treasury the authority to sanction individuals involved in implementing the new National Security Law in Hong Kong. It also allows for the sanctioning of financial institutions that do business with those individuals.

But this new sanction authority is “disconcerting to U.S. financial institutions as well as Chinese, because the law doesn’t distinguish between the nationalities of the institutions,” Tong told the NewsHour. “So theoretically, under the law, the U.S. could sanction a U.S. bank for doing business with a Chinese official that has been sanctioned.” This creates problems for the banks because if they follow the next logical next step, which is to stop doing business with these people, there is the possibility that under Chinese law, they could be in legal jeopardy for having colluded with a foreign power — in this case, the United States.”

While the possibility of sanctions on U.S. banks exists, it is very unlikely that American or Chinese banks will be targeted, says Richard Nephew, who served as the principal deputy coordinator for sanctions policy at the State Department. “Yes this could be a big deal but… is it likely we will see the Bank of China sanctioned? No.”

Nephew points out that the Trump administration did not attach an annex to the executive order identifying individuals or banks that would be targeted. Nephew says if the U.S. sanctioned every Chinese bank that did business with individuals involved in the crackdown in Hong Kong, it could be sanctioning every bank in China. which would likely result in China retaliating against American banks and lead to the breakdown of the international financial system. The idea of that happening is unlikely, Nephew said.

The Hong Kong Autonomy Act requires the departments of State and Treasury to report and identify people and financial institutions that should be sanctioned. The reports are due within the next 30 to 60 days.

The Chinese Ministry of Foreign Affairs released a statement condemning the U.S. action, saying “it constitutes gross interference in Hong Kong affairs and China’s internal affairs. The Chinese government firmly opposes and strongly condemns this move by the United States.”