Resolution of the tensions in Hong Kong could foreshadow the direction of U.S.-China relations in general and the prospects of a settlement in the ongoing trade dispute that has hammered U.S. manufacturers, including those in South Carolina.
The demands of pro-democracy activists against the Hong Kong government and the massive street protests that have gone on since early June now appear headed for some kind of denouement. But the possibilities of a damaging Chinese crackdown remain high. If it comes, it will be a strong sign that President Trump is unlikely to win trade concessions before the 2020 presidential election.
That would be bad news for South Carolina, whose largest market is China and which is one of the most vulnerable states in a prolonged trade war. South Carolina exported $5.6 billion in goods to China in 2018, which was 16 percent of the state’s total goods exports, according to the Office of the U.S. Trade Representative. Companies such as BMW and Volvo are already feeling the impact of tariffs, as are other businesses and the agriculture industry.
The fundamental issue in Hong Kong is its special status under the “one country, two systems” agreement that returned Hong Kong to Chinese rule in 1997. Under that agreement, Hong Kong has an independent judiciary, a legal system based on British law, and a quasi-free legislature with 35 directly elected members and another 35 chosen by so-called “functional constituencies” more subject to influence from Beijing.
A Chinese intervention would effectively terminate the city’s special status, allow the jailing of the city’s democracy advocates, and violate a major commitment of the Chinese government.
It would also effectively end any prospect of a trade settlement and could even lead to a major breach of relations with the United States.
On Wednesday, Hong Kong Chief Executive Carrie Lam announced she would withdraw a proposed law authorizing extradition of Hong Kong residents to face legal charges in China. The proposed law was correctly viewed as a threat to the independence of Hong Kong’s legal system and news media and to the city’s political freedom. Ms. Lam was widely seen as carrying out instructions from Beijing. In response, as many as a million protesters jammed the streets of the city in a series of demonstrations that began June 10.
However, Ms. Lam’s belated concession after months of protests did not meet all of the demonstrators’ demands. She did not order an investigation of violent tactics by Hong Kong police or dismiss charges against demonstrators.
And, significantly, in the days before she made her announcement, China quietly doubled its military garrison in Hong Kong under the guise of a regular rotation.
The initial reaction of pro-democracy leaders in Hong Kong to Ms. Lam’s speech was “too little, too late.”
If she responds by meeting at least one more of the five demands, the door will open to a peaceful settlement. But if she holds firm, protests will continue and the likelihood of a Chinese crackdown will rise sharply. There is no question that Ms. Lam’s decision rests in the end with Chinese president Xi Jinping.
Businesses in South Carolina and elsewhere across the United States are watching to see what happens next in Hong Kong. They need a resolution of the crisis and progress on trade talks.