Source: South China Morning Post
Date: 6th May 2025

Starting next Monday, 41 per cent of container capacity scheduled from Hong Kong to North America’s west coast has been cancelled.

Hong Kong is suffering collateral damage from an intensifying tariff war between China and the United States, shaking the city’s crucial role in re-exporting goods, business leaders have warned.

Many manufacturers with more than 15 per cent of business exposure to China-US trade had been forced to slash jobs or save costs, said a reliable source.

There will be a huge economic hit, and probably more so on the Hong Kong side, because Hong Kong is a pass-through.

That is driven by tariffs of 145 per cent that the U.S. President recently imposed on Chinese imports. The U.S. President has also levied so-called reciprocal tariffs on most of the U.S.’s trade partners, but to a lesser extent.

And the impact of the same tariff imposed on Hong Kong is probably a lot heavier than what we are seeing on mainland China.

According to TAC Index, an air freight intelligence provider, the index of outbound routes from Hong Kong fell by 3.1 per cent week on week in the four weeks leading to April 28, leaving it 3.6 per cent lower year on year.

Market players have been trying to navigate volatility and turmoil in global trade caused by the on-again, off-again saga of new tariffs into the US, as well as an end to the ‘de minimis’ exemption for small packages of under US$800. which expected further falls in air cargo rates.

Before the tariff war, the city’s value of exports to the US gained 4 per cent year on year, reaching HK$70.25 billion (US$9.06 billion) in the first quarter, according to the Census and Statistics Department. But the value of imports sank by 6.2 per cent, falling to HK$51.7 billion.

Analysts said they expected tariffs would dampen exports and re-exports to the US from early April.

The trade war would also have implications for Hong Kong’s mandate to be an international maritime and transhipment hub, serving as a bridge between the country and the rest of the world.

Carriers are cancelling many sailings, including very high levels of sailings that were scheduled from China to North America for the coming weeks. It is expected that lower ocean freight volumes will occur if the tariff situation remains significant.

That shows a drop in demand for ocean freight out of China to North America, to the United States.

For some businesses, tariffs are “not unviable, and certainly if shippers and importers are ordering anyway, you would see those costs passed on to consumers. And we are not seeing that just yet. The tariffs only went into effect a couple of weeks ago, so there will still be time for those costs to show up.

In late April, German container carrier Hapag-Lloyd said its customers had cancelled 30 per cent of shipments to the US from China as a result of the trade conflict.

Forty-one per cent of container capacity scheduled from Hong Kong to North America’s west coast in the week starting Monday has been cancelled, and 32 per cent in the coming two weeks, according to supply chain research firm Sea-Intelligence. While high, this is not outside of the normal supply volatility seen on the liner services from Hong Kong to North America.

“For the services from Hong Kong to North America, we do not see any discernible increase in the number of blank sailings for April or May, which is contrary to what we see for the overall trans-Pacific trade,” said the chief executive and founder of Sea-Intelligence.

“One could speculate that as Hong Kong has lost significant presence on the transpacific over the past decade, there is less optionality to cut capacity on the services from Hong Kong.”

“In 2013, Hong Kong had 30 weekly services connecting to North America, but by 2024 this had dropped to just 10 weekly services, and in the 2025 networks this has dropped even further to just seven weekly services.”

“The situation is further aggravated by a growing number of manufacturers setting up operations or trading in Mexico to take advantage of the zero-tariff benefits under the US-Mexico-Canada trade agreement and tax incentives.”

“A lot of manufacturers that we know of are already taking measures to either cut down their labour forces, or they are looking at different ways to save money,” Sea-Intelligence said.

Meanwhile, said that “since the previous Trump trade war, we have seen a gradual shift away from China and towards alternatives. Mexico was a big beneficiary of that.”

Investments from China into Mexico and logistics flows between the two countries were on the rise.

The Mexico-based industry leader said: “During and since the pandemic, we’ve been receiving Chinese companies every month, a lot of them coming to Mexico.”

Reasons include the cost, logistics, uncertainty of labour availability and tariffs, according to the manager of Asia business development at American Industries Group, which has developed 17 industrial estates and served more than 300 companies in Mexico.

For instance, Hong Kong-listed battery producer Leoch International Technology is building its second factory in Mexico.

“Since the pandemic, we have noticed changes in the concept of a global supply chain referred to as the global village, which is gradually shifting towards regionalisation,” said Leoch’s executive director and chief investment officer.

The chairman of the Federation of Hong Kong Industries expressed concerns about the unpredictability of US trade policy.

“How am I to know what the U.S. President will say tomorrow? If he says that Mexico gets 145 per cent tomorrow, what then? Wouldn’t my investment be in vain?” Federation of Hong Kong Industries said.

“Therefore, such unpredictable policies in the U.S., changing with each passing day, make it fundamentally impossible to conduct business.”