William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."
Is Donald Trump's White House prepared to trash Hong Kong's economy just to spite China?
That is the upshot of an explosive Bloomberg news report last week. The thrust of the story: top advisers to the American president are mulling ways to undermine Hong Kong's U.S. dollar peg, which has kept its currency stable since 1983.
A change would limit the ability of city's banks to buy or sell the U.S. dollar, which makes it harder to regulate the local exchange rate. If the dollar became harder to control, and volatility increased, Hong Kong could lose relevance among investors. A key selling point for the city has long been having the stablest exchange rate in Asia.
Markets gyrated -- bank HSBC's shares especially -- as investors debated the plausibility of the approach. It does not really matter. That Team Trump might be keen to destroy the core of Hong Kong's financial system shows just how far some in the administration are prepared to go to troll China's President Xi Jinping.
The large chunk of Hong Kong's 7.4 million people hostile to Beijing should be natural allies as the Trump administration weighs how to punish China. But Secretary of State Mike Pompeo's diplomatic corps was late to the Hong Kong protest movement. The transactional president he serves stayed neutral last year as millions marched for democracy. Only now, as Xi dynamites the rule of law in the former British colony, does Trump's White House stumble onto the scene.
It is too late. Things have played out almost exactly as human rights groups feared since the 1997 handover to China. The fallout from Xi's vague but chilling national security law is still spreading. Rather than stand with Hongkongers -- by offering asylum to protest leaders, say -- Trump casts them as pawns in a dangerous game of geopolitical chess.
There are other ways the tiny territory is emerging as the front line in Trump vs. Xi. Ask executives at Facebook, Google, Twitter, Zoom and other Big Tech names about the week they just had, being forced to choose between their businesses and their data safety.
Trump's willingness to kneecap the global financial system to win reelection on November 3, in which Hong Kong is only one point of attack, should not be downplayed. Pompeo, for example, is essentially turning China into the next Iran: a malevolent force that must be stopped at all costs. How he and other Trumpers express this worldview, policy-wise, puts Asian markets in harm's way.
What comes next? There is little comfort in White House claims that the idea of attacking Hong Kong's dollar has not yet reached Trump's desk. He has railed against Asian currency policies for decades, dating back at least to his days as a New York property developer.
In 2016, he raised the specter of default on U.S. government debt. As recently as May, his team was floating an idea to cancel some -- or, for all we know, all -- of the $1 trillion of debt Washington owes Beijing.
A move to weaken the dollar for trade advantage could come at any moment. No doubt U.S. Treasury Secretary Steven Mnuchin would dutifully carry out a directive to force the Federal Reserve to sell dollars aggressively.
New China tariffs are almost a given between now and election day. So are additional steps to bar mainland companies -- Hong Kong ones, too -- from access to the U.S. market or listing in New York. This could include moves to delist companies. Would Jack Ma's Alibaba Group Holding, listed on the New York Stock Exchange, be sent packing? Stay tuned.
Trump could make good on threats to slap 25% taxes on cars and auto parts, sending shock waves through global supply chains. What is to keep him from tearing up the phase one bilateral trade deal with China in a show of defiance to appear strong to his base?
He could limit U.S. banks' latitude to fund China-region banks, driving their costs markedly higher. He could bar Hong Kong from the SWIFT network that clears international currency transactions.
Any of these steps would kick a Hong Kong economy when it is down. Yet things could easily boomerang on America. It could hurt the profitability of banks cut off from greater-China currency dealing. Beijing may target U.S. institutions with tit-for-tat measures. Finally, Trump risks damaging trust in the dollar and U.S. Treasury debt, the linchpins of global finance.
The hope is that cooler heads prevail in Washington. Trump, though, reminds us almost daily that there is no bottom to how low he might go to win in November. He will not much care if he takes Asian markets down with him. It is going to be a very long few months.