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Hong Kong’s currency peg, US-China trade war could create perfect storm

17 0 9
10.07.2018

The Hong Kong economy may be sailing into choppy waters. It stands exposed to the deterioration in China-US trade relations but also, through the currency board mechanism, to further tightening of US monetary policy. And that tightening is still coming. China-US trade tensions do not currently seem to be a material concern for the Federal Reserve.

Hong Kong is undoubtedly vulnerable on trade, as noted last week by Secretary for Commerce and Economic Development Edward Yau Tang-wah who said Hong Kong will be “the first to bear the brunt” of the China-US trade dispute.

In contrast, the release last week of the minutes of the US central bank’s June meeting showed most of the Fed policymakers “noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects”. The key word here is surely “eventually”.

Indeed, at present, there no signs that the deterioration in trade relations between Washington and Beijing, and indeed between the US and much of the rest of the world, are having a negative impact on the outlook for the US economy.

In fact, on an issue that appears so close to the heart of US President Donald Trump, that of the trade deficit, the opposite might be true.

Hong Kong’s bill for defending city’s dollar stands at HK$52.9 billion

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© South China Morning Post