[Asia Economy Reporter Park So-yeon] It is anticipated that if conflicts between the United States and China escalate over the enactment of the Hong Kong National Security Law, South Korea’s exports, which have utilized Hong Kong as a re-export trade hub, will also be affected.
The Korea International Trade Association’s International Trade and Commerce Research Institute made this prediction in its report titled "US-China Conflict over the Hong Kong National Security Law and Its Impact on Our Exports."
The Hong Kong National Security Law (Hong Kong Security Law), which mainly includes monitoring anti-government activities within Hong Kong and prohibiting foreign forces from interfering in Hong Kong’s internal affairs, was passed by a vote at China’s National People’s Congress the day before.
The United States has pressured China by threatening to revoke Hong Kong’s special status if the law is enacted. The US enacted the Hong Kong Policy Act in 1992, granting Hong Kong special treatment different from the mainland in visa issuance, investment attraction, and law enforcement, based on the premise that Hong Kong exercises autonomy. This played a crucial role in Hong Kong’s growth as a leading financial and logistics hub in Asia.
The Trade Association stated, "If Hong Kong loses its special status, it will have to bear up to an additional 25% tariff imposed by the US, just like mainland China," and added, "The loss of its role as a financial hub is expected to lead to a massive outflow of foreign capital."
This situation will inevitably affect South Korean exports as well. Hong Kong is a re-export trade hub where 89% of total imports are re-exported. In particular, 50% of total imports are re-exported to China.
Hong Kong is also South Korea’s fourth-largest export destination. Among South Korean products exported to Hong Kong, 114% (including handling fees and storage costs) are re-exported to third countries, of which 98% head to China.
Hong Kong has been utilized as a re-export trade base due to advantages such as low corporate tax, a stable exchange rate system, and its status as an international financial, trade, and logistics hub with ports and airports.
The Trade Association predicted that if the US withdraws Hong Kong’s special status and immediately applies the retaliatory tariffs currently imposed on China to Hong Kong, it will negatively impact Hong Kong’s exports to the US.
However, the Trade Association forecasted that the immediate impact on South Korean exports would be limited, as only 1.7% (based on 2019 data) of the volume South Korea exports to Hong Kong is re-exported to the US.
Nonetheless, if the US strengthens sanctions on Hong Kong, making it difficult to use Hong Kong as a re-export transit point, short-term export disruptions are expected.
The Trade Association said, "Semiconductors are basically tariff-free and can be directly exported to China," but added, "Small and medium-sized export companies, excluding major domestic semiconductor corporations, are expected to face increased logistics costs and short-term export disruptions until alternative air routes are secured."
Items such as cosmetics and agricultural and marine food products are expected to face customs clearance delays because China’s customs and quarantine procedures are more stringent than Hong Kong’s.
If the conflict between the two countries escalates into a standoff and prolongs, Hong Kong could ultimately lose its hub function, and the negative impact on South Korean exports is expected to expand.
Conversely, there is also an analysis that the expansion of US-China conflicts could present opportunities for South Korea.
The Trade Association predicted, "If the US-China conflict intensifies and China’s export route to the US via Hong Kong is blocked, South Korean companies’ exports to the US will relatively gain a competitive advantage."
It is expected that South Korea’s exports will benefit from the spillover effect in sectors with high export competition due to strengthened US sanctions against China, such as petrochemicals, home appliances, medical and precision instruments, optical devices, steel products, and plastics.
In fact, the Trade Association forecasted that South Korean companies’ global market share will increase in the smartphone and telecommunications equipment markets, which are currently competitive with China due to US sanctions against China.
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