Trump adviser warns China, says U.S. would pay firms to shift from Hong Kong

WASHINGTON (Reuters) – President Donald Trump’s economic adviser said on Tuesday that China was making “a big mistake” with planned national security legislation on Hong Kong and pledged Washington would pay expenses of U.S. firms that wanted to shift operations from the territory or China.

At the White House, spokeswoman Kayleigh McEnany told a briefing Trump was displeased with Beijing over the security law and finds it “hard to see how Hong Kong can remain a financial hub if China takes over.”

Asked if this meant Washington might end the special economic treatment it affords Hong Kong that has enabled it to maintain its position as a global financial center, McEnany said she had no further announcements as to the precise action that could be taken.

China’s parliament is expected on Thursday to approve Beijing’s proposed security law that would reduce Hong Kong’s separate legal status.

Trump economic Larry Kudlow, speaking to Fox News Channel, called Beijing’s actions “very disturbing.”

“China is making a big mistake, frankly,” he told Fox Business Network separately.

Kudlow said Washington would welcome back any American companies from Hong Kong or on China’s mainland. “We will do what we can for full expensing and pay the cost of moving if they return their supply chains and their production to the United States,” he said.

Trump administration officials and lawmakers have been exploring ways to encourage U.S. firms to move supply chains for critical products and materials back to the United States from China amid steadily worsening ties and bitter recriminations over the coronavirus pandemic, which began in China.

Proposals discussed so far include tax breaks, subsidies including a potential $25 billion “reshoring fund” and new local content rules.

U.S. Secretary of State Mike Pompeo, who is due to release a congressionally mandated assessment on whether Hong Kong enjoys sufficient autonomy to justify continued special economic treatment, said last week the legislation would be the “death knell” for the territory’s autonomy.

If the State Department decertifies the territory, it would fall to Trump whether to decide to end some, all or none of the privileges Hong Kong currently enjoys.

Trump has warned of a strong reaction and national security adviser Robert O’Brien said the legislation could lead to U.S. sanctions and threaten Hong Kong’s status as a financial hub.

Kudlow also said that while Trump’s Phase 1 trade deal with China reached in January was intact for now, the president was so “miffed” with Beijing over the novel coronavirus and other matters it was not as important to him as it once was.

The U.S. Chamber of Commerce business lobby urged Beijing to de-escalate the situation, saying it would be “a serious mistake” to jeopardize Hong Kong’s special status.

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