The US: Friend No More

Mark Simon
Second Opinion
Next Magazine
08 April 2010

With our currency pegged to the US dollar, rule of law, long standing cooperation in international financial affairs and staunch support of free trade, no other trading partner offers more of what the United States claims it needs for the success of its people and companies in international commerce than Hong Kong does. At least that was the story until President Obama and his left leaning union-backed coalition came to power.

A US president who supports higher taxes, greater regulation,"fair" over free trade, and a belief that nations with"costs" below those of the US have an unfair trading advantage, means Hong Kong is about to taste the economic and trade agenda of the American left.

The shift in the US Democratic Party on trade has been taking place for some time, as unions, environmentalists and the usual collection of anti-capitalist elements have climbed to power within the party. Unions never forgave Bill Clinton for his pro-trade accomplishments which they saw as hurting US workers. President Obama secured union support in 2008 with a pledge to be more skeptical towards free trade. A pledge that he has undeniably lived up too as he has stopped signature-ready trade agreements with South Korea and Columbia, and made trade talks more about climate change than the exchange of goods.

The Democrat's anti-trade stance has consequences for Hong Kong. We are a city that lives on trade. If the dominant political power in our second largest market is turning protectionist, then Hong Kong will be harmed. Worse yet is when that trading partner is the US, and Hong Kong is seen as an economic threat based on the very system that has made Hong Kong prosperous.

Newsweek recently wrote that the only thing China accomplished at last April's G20 meeting was to block a US effort to name Hong Kong a tax haven. China may soon have another item to block. It is no coincidence that the Petersen Institute, a left leaning pro-Obama economic think tank recently called Hong Kong's currency undervalued. Is the US about to add currency manipulation to its charge of Hong Kong being a tax haven and opaque offshore banking center? And since Hong Kong hasn't made many changes to our banking system in the last twenty years, when exactly did we become the rouge system the US now wants to clamp down?

Hong Kong is not a money laundering center nor a city founded on tax evasion. We are a low tax trading hub. The fact that Hong Kong banking laws are under assault by the US Treasury and IRS has more to do with closing up a financial system which is far more competitive than the high-cost US rather than the IRS chasing deadbeat Americans. It did not go un-noticed in the US that Hong Kong eclipsed New York in IPO offerings as companies fled US over-regulation and high taxes. It is possible to become competitive by either cutting your own costs or by raising your competitor's costs.

The shift in the US position on Hong Kong is clear. Is there one item on the US-Hong Kong agenda that opens more trade or removes regulation between the two partners? The entire economic focus of the US on Hong Kong is negative and accusatory.

Hong Kong's response to this new hostility has been feeble. The US is calling Hong Kong a money laundering tax haven with poor banking laws. Hong Kong's response? A kowtow. While it is understandable that the government does not wish a fight with the US, one might ask what the alternative is if Hong Kong does not resist the US? Make no mistake the problem the American left has with Hong Kong goes much deeper than a few banking law changes. A protectionist agenda is forming in the United States and Europe, and part of that agenda is an attack on low-tax light-regulation nations. This means Hong Kong.

Donald Tsang and his government owe the Hong Kong people a defense of the Hong Kong system, not complicit adherence in helping the US raise the cost of Hong Kong by increasing regulation and reducing competitiveness. Some fights are worth having.

Mark Simon first lived in Hong Kong from 1992 to 1995. Since 2000 he has been an executive with the Next Media group in Hong Kong. He has written on free trade in the Asian Wall Street Journal, IHT, SCMP, and various international policy journals.