United States President Donald Trump trade-sanctioned China; Hong Kong citizens, including its government, in general take a detached attitude. As a separate tariff territory from the Chinese mainland and without electronic manufacturing activities, we act as if we were a bystander.

This is the wrong stand because Hong Kong is, along with the mainland, on the sanctioned list although we are not hurt much. As a separate tariff territory Hong Kong has to defend its rights under World Trade Organization agreements irrespective of any actual harm. In fact because we are totally unrelated to the current trade dispute the US has with the mainland we should be left out of the sanction.

It is a matter of principle because we will never know how far this crazy trade war initiated unilaterally by Trump will go. Should we connive at this unlawful transgression, we will be innocently dragged deeper and deeper into this nonsense. So what is the status of a separate tariff territory after all, and what is the point of being a special administrative region within China?

If we treasure "one country, two systems" as we all claim we do, we should take the issue to the WTO and fight. This is not pleading as some pundit would jeer at because it is a legitimate fight.

It seems that our decision-makers are not aware that an epic economic war has erupted under an even bigger new Cold War. Two giants, China and the US, are now locking horns. Some call this the Thucydides' Trap - some US scholars claim war is inevitable when a rising power challenges the existing one.

While the mainland has no intension whatsoever to challenge the ongoing Pax Americana, the US has already fixated on China as its No 1 competitor and a "revisionist" to the current international order, and is bent on crushing it. Hong Kong as China's cosmopolitan city under "one country, two systems" is caught right in the middle of it.

Psychologically our decision-makers are not prepared for this colossal confrontation and up till now they don't seem to realize a perfect storm is gathering. As China's international financial center, Hong Kong is especially vulnerable. Many of us have perhaps forgotten the pain of the Asian Financial Crisis some 20 years ago. With the help of the central government and a lot of luck we managed to fend off the attack but subsequently the city was plunged into 60 consecutive months of recession. Finally, it was the Closer Economic Partnership Arrangement and flood of mainland visitors that saved the day.

Recently we saw the Hong Kong dollar constantly going weak against the already-weak US dollar. The Hong Kong Monetary Authority told us not to worry as this is the natural outcome of rising interest rates in the US. Because the Hong Kong dollar is pegged to the US dollar, more and more will be converted into the US dollar to take advantage of the interest-rate differential. The out-flowing funds are idle money just happened to park here and it is not consequential whether it is here or flowing out. In any case, they have intervened in the market when the Hong Kong dollar hit a prescribed low.

I agree this might be true because they are the authority and should know better than us ordinary folks. But monetary matters are very tricky and in the final analysis it is a matter of perception. If a lot of people start to panic for no real reason at all, it will become a real panic. Even a small rumor could spark a rush to convert Hong Kong dollars into US dollars. Should that happen, the avalanche could only be stopped by a big and sudden hike in our interbank rate to the tune of several hundred percent per day as in 1998, bringing a subsequent backlash in the economy.

These are difficult times and should require high alert and extraordinary measures when necessary. The officials in the monetary authority are not living in an ivory tower, and they should remember many of us are not that rational. A gradual increase in interest rates in line with the US will do us not much harm, at least not as much as otherwise.

(HK Edition 04/24/2018 page9)