Protesters in gas masks flooding the streets of Hong Kong might hope U.S. President Donald Trump ratchets up pressure against the former British colony’s China-backed leadership. Trump has the unilateral power to rescind Hong Kong’s status as a preferential trading partner -- a potentially huge blow that would undermine confidence in the Asian financial hub. The move would be an almost unthinkable escalation of the U.S.-China trade war, but Washington lawmakers have begun making supportive noises.

1. What can Trump do?

When Britain passed control of Hong Kong to China in 1997, Beijing guaranteed that the territory’s independent legal, judicial and economic systems would remain unchanged for 50 years. On those terms, the U.S. agreed to treat Hong Kong differently than the People’s Republic of China. But under the United States-Hong Kong Policy Act of 1992, the U.S. president can issue an executive order suspending Hong Kong’s special treatment under U.S. law if it’s decided the territory is no longer “sufficiently autonomous.” The raging debate over a proposed Hong Kong law that would, for the first time, allow the extradition of criminal defendants to China has fueled questions about China’s 1984 pledge to allow a “high degree of autonomy” for Hong Kong under an arrangement known as “one country, two systems.”

2. What would the impact be?

Revoking Hong Kong’s preferential status would mean the U.S., the world’s largest economy, treating Hong Kong as just another Chinese city -- at a time when it’s slapping tariffs on billions of dollars worth of Chinese goods. “It’s pretty much the nuclear option against Hong Kong -- it would be the first nail in the coffin,” said Steve Tsang, director of the China Institute at London’s School of Oriental and African Studies. “It would be the beginning of the death of Hong Kong as we know it.”

3. Is Trump likely to act?

It’s unclear. His administration hasn’t exactly been quick to speak up for human rights in other countries. But he’s shown a willingness to use whatever it takes to extract concessions from Beijing, and the Hong Kong protests could provide a negotiating tool. “I hope it all works out for China and for Hong Kong,” Trump said on June 12. “I’m sure they’ll be able to work it out.” Simply holding the power to withdraw preferential trade status from Hong Kong is “much more useful” than actually deploying it, Tsang said.

4. Who wants Trump to act?

Numerous U.S. lawmakers have expressed concern that the extradition bill crosses a red line. House Speaker Nancy Pelosi, the highest-ranking Democrat in the U.S. Congress, vowed to review U.S. trade ties if the proposed bill passes, saying it “imperils the strong U.S.-Hong Kong relationship,” would “legitimize and legalize” the kidnapping of executives and dissidents to the mainland and merits a reassessment of whether the territory is “sufficiently autonomous.” Senate Majority Leader Mitch McConnell, a Republican, said the draft extradition law “is inconsistent with the Hong Kong Policy Act and puts Hong Kong on the path of becoming just another Chinese city subject to Beijing’s whims.”

5. What is the official U.S. stance?

Asked about Hong Kong’s special status in a June 12 briefing, State Department spokeswoman Morgan Ortagus said there’s been a “continued erosion” of the “one country, two systems” arrangement and warned that “Hong Kong’s long-established status in international affairs” was at risk. The latest annual U.S. report on its Hong Kong policy says China continues to pursue actions inconsistent with its pledges to allow a “high degree of autonomy.” And last year, the U.S.-China Economic and Security Review Commission recommended that the Trump administration reassess whether Hong Kong should continue to have special trading status to receive dual-use U.S. technology with consumer and military applications, such as carbon fiber used to make both golf clubs and missile components. The commission said Beijing’s statements and legislative actions “continue to run counter to China’s promise to uphold Hong Kong’s autonomy.”

6. What does Hong Kong’s government say?

Hong Kong’s chief executive, Carrie Lam, sought to reassure investors in March that the city still adheres to the rule of law and has an independent judiciary. She defended the extradition law at the time as a way to prevent Hong Kong from becoming “a haven for fugitive offenders” and said it wouldn’t undermine business freedom.

To contact the reporter on this story: Iain Marlow in New Delhi at imarlow1@bloomberg.net

To contact the editors responsible for this story: Ruth Pollard at rpollard2@bloomberg.net, Laurence Arnold, Joshua Gallu

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