An economist told CNBC on Thursday that the ongoing civil unrest in Hong Kong is the biggest geopolitical threat to global markets.
Holger Schmieding, the chief economist at Berenberg said that the worst-case scenario has been apparent after President Donald Trump signed two bills that backed protesters in the said country. This decision reignited tensions between Beijing and Washington. China’s Ministry of Foreign Affairs accused the United States of apparently having sinister intentions.
Schmieding added, that if the situation in Hong Kong escalates into worse waters, and with Chinese heavy-handed military intervention, it would mean the large impossibility for the U.S. to conclude a trade deal with China. This includes a stage one deal, with EU unable to do this either. This would then prolong the global industrial downturn caused by trade tensions between the countries involved.
Since October, both the U.S. and China have been negotiating a phase one trade deal. This intends to be a gateway to a more comprehensive agreement. This would hopefully end the months-long trade war between the world’s largest economies. For months, markets have experienced volatility amid mixed-signals around tariff escalations and positive trade talks between the two countries.
Hong Kong’s Impact on US-China Deal
The situation in Hong Kong could impact the phase one deal. But Schmieding said it’s unlikely that the worst-case scenario would materialize. Based from the actions of China in Hong Kong, Beijing still seems to prioritize safeguarding its own economy from the fallout of a prolonged trade war.
President Trump signing the bill increased tensions. However, the economist said it doesn’t seem to have a significant or lasting effect.
According to Reuters, the anti-government protests and demonstrations in Hong Kong have an economic cost. There’s an increased presence of Chinese troops in Hong Kong. Meanwhile, some analysts told CNBC they don’t see Chinese military intervention as a likely response from Beijing.
