Politics

Hong Kong turmoil could cast a 'shadow' over China-US trade talks, experts say

Key Points
  • The world's two largest economies are back at the negotiating table on Thursday aimed at resolving the trade war between Beijing and Washington.
  • Experts say that the Hong Kong protests may not directly affect the outcome of the trade talks, but it could still weigh on negotiations.
  • "It will just irritate the Chinese that the two [situations] are being linked," said Richard Harris, CEO of Hong Kong-based asset management firm Port Shelter Investment Management.
Chinese shipping containers are stored beside a US flag after they were unloaded at the Port of Los Angeles in Long Beach, California on May 14, 2019.
Mark Ralston | AFP | Getty Images

As Beijing and Washington return to the negotiating table looking to settle their trade dispute, experts say the Hong Kong protests could cast a "shadow" over discussions — even if the situation doesn't directly affect the outcome of this week's talks.

Ahead of the discussions, U.S. President Donald Trump told reporters on Monday he hopes China finds a humane and peaceful resolution to the ongoing political protests in Hong Kong, Reuters reported.

"If anything happened bad, I think that would be a very bad thing for the negotiation. I think politically it would be very tough," Trump said of Hong Kong's pro-democracy protests, Reuters said.

Hong Kong, a former British colony, returned to Chinese rule in 1997. Anti-government protests have rocked the city for over four months now. They first erupted over a now withdrawn extradition bill that would have allowed fugitives to be transferred to mainland China for trial.

"It will just irritate the Chinese that the two [situations] are being linked," said Richard Harris, CEO of Hong Kong-based asset management firm Port Shelter Investment Management.

But if Beijing exercises any extreme measures in Hong Kong, then there will be potential talks of sanctions and restrictions, denting any progress that has been made, Harris told CNBC's "Squawk Box" on Tuesday.

"There's been strong reports, even this morning, that if there is major action by Chinese forces in Hong Kong, that it will certainly be included in terms of the trade deal — and you have to think that's going to be the case," he said.

Even if there's no direct impact, Hong Kong's months of unrest "will likely cast an uncomfortable shadow over the [trade] discussions," said Nick Marro, global trade lead at The Economist Intelligence Unit.

U.S. Commerce Secretary Wilbur Ross told Fox Business last week that the "(Hong Kong situation) probably will have some impact on the Chinese side, even despite whatever it has on ours, because this is a sign of domestic dissent within their community and Hong Kong is quite important for the international trading activities of China."

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What is Hong Kong's relationship with China?

China faces a big political challenge in Hong Kong — a city that operates under the "one country, two systems" principle, which grants its citizens a certain degree of financial and legal independence from the mainland. The global financial center is going through its biggest political turmoil since its return to Chinese rule.

If China encroaches on Hong Kong's economic autonomy to establish direct trade relations with other markets, then the pressing issue for the city is the risk of being "lumped in with China in terms of tariffs," Harris said. He added that would be "extremely challenging."

Beijing has repeatedly claimed that "external powers" are meddling in its handling of the situation in Hong Kong, condemning "any foreign interference."

Meanwhile, U.S. lawmakers are considering the Hong Kong Human Rights and Democracy Act, EIU's Marro noted. The bill would make Hong Kong's special privileges, including those related to trade and business, subject to annual review in Washington.

A Beijing official in Hong Kong has called the bill "the epitome of hegemony," adding that the U.S. is "justifying its interference in other countries' internal affairs with its domestic law" by considering such legislation.

Still, Harris said he believes most people in Hong Kong think this is an issue that Beijing will ultimately have to handle itself.

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Key Points
  • The anti-mask law in Hong Kong has incited another weekend of mass protests.
  • Hong Kong lawmaker, Holden Chow says it is hard to come to a conclusion whether the anti-mask law is effective or not, because it only came into effect a few days ago — but "we should see in short and medium term how it goes."
  • Pro-democracy lawmaker, Claudia Mo highlighted that "the Chief Executive has no power to enact regulations in the manner she has."