Professor Francis Lui of the Macau University of Science and Technology, and also of the Hong Kong University of Science and Technology, is on the show this week. He dissects the US trade wars and how it may affect Hong Kong's economy and also the US political landscape.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Professor Lui:

Chan: Good evening. I'm Eugene Chan on Straight Talk, and our guest is economics chair professor Francis Lui from the Macau University of Science and Technology. Professor Lui is also professor emeritus at the HKUST, where he was a founding member and is a graduate of both the universities of Chicago and Minnesota. He has advised various government bodies, and was awarded the Bronze Bauhinia Star medal and appointed Justice of the Peace for his academic and public service contributions. A respected economist and public commentator, he brings decades of insight on China, global trade, and the Hong Kong economy to our discussion this evening on the impact of US tariffs on Hong Kong and what it means for our economic future. Welcome, Professor!

Lui: Hi!

Chan: Professor, you know that I had another professor, Lawrence Lau, on the show two weeks ago. And he commented that the US tariff would only have a limited impact on Chinese exports to the US because he said it makes up less than 3 percent of China's GDP in 2023 and also the bilateral trade surplus is only 1.67 percent. On the other hand, an analyst at Goldman Sachs says that the tariff could put as many as 60 million jobs in China at stake, especially in the manufacturing of goods for retail and wholesale as well. So, what is your opinion on those contrasting opinions?

Lui: Professor Larry Lau is a good friend of mine, and I believe I understand his way of thinking, and therefore I tend to agree with him much more.

Chan: Right.

Lui: But let us look at it better. Now, China's trade surplus of the US is, of course, substantial, but if we look at the bigger picture, the entire GDP of China, which is very big, then we know that the possible impact on the Chinese economy could be quite minimal. I would estimate that the impact, or the negative impact, on China's GDP, would be less than 1 percent.

Chan: Right.

Lui: That is still substantial, and there are a lot of opportunities for China to alleviate this kind of impact further. But as everybody is saying in a trade war, there's no winner. China will lose. The United States will lose, and I believe that the US will lose more, but the whole tariff war is somewhat unfortunate, and nobody knows how it will end.

Chan: So, professor ... so you agree with Professor Larry that there will be effects for sure, but should be minimal, maybe less than what will happen to the US. I think that's the comment you are trying to share with our viewers.

Lui: Now, even though the overall impact is not really that big, different people will feel different pains. For some of the people who are directly affected, then, of course, they will suffer a lot, but for the ordinary people who are not really that much involved in the direct trade with the US, well, they may not even feel anything at all.

Chan: Right, so you're saying that if I'm gonna ask you, our title of the show today is asking, “What’s at stake for Hong Kong?” So, you will say that it should be minimal for most people. But how about those people who actually Hong Kong traditionally has been a re-export hub using Chinese products, right? So, Hong Kong is like an intermediary between the West and the Chinese mainland. Will they be severely affected?

Lui: Well, I believe that the overall impact on Hong Kong may even be positive, not negative.  

Chan: Really?

Lui: We have to distinguish between different forces. Now, Hong Kong's domestic exports to the US is very small, this is because Hong Kong is no longer a manufacturing center. And last year, as far as I know, the domestic export to the US was only HK$6.1 billion, which is a very small amount compared to Hong Kong's GDP, which is about HK$3 trillion. Now, on the other hand, as you have said, Hong Kong is a major re-export center. So, those people who are involved in re-exporting, or involved in logistics, will all have to suffer so much more. And then there's another effect, which is quite positive on Hong Kong. Hong Kong will try to retain a zero tariff rate for most of the products, and that will make Hong Kong a paradise for tourism. A lot of people will come to Hong Kong to buy goods which are much cheaper than what they can buy elsewhere. So, people from the mainland and people even from the US may come to Hong Kong, and that could revive the tourism industry here.

Chan: Right. So, maybe I should change the title show, rather than “what is at stake” it’s “what is Hong Kong going to gain?” in other words.

Lui: Yes.

Chan: But having said that, I've also heard along the grapevine, from friends that actually a significant number of companies that do a lot of Chinese businesses have gone into big trouble and or even to shut down. Right? So, is that true? Do you think?

Lui: Yes, there will be quite a few companies which will face tremendous difficulties. Well, I hope that this period of pain will be relatively short. Okay. As I've said, that there's no gain ... there's no winner in any of this kind of trade war. But we can see that some people in Hong Kong will gain, some people in Hong Kong will lose. But still, for the overall picture, I think that the effect on the GDP of Hong Kong is quite small.

Chan: So, Professor, let's look at the whole issue at greater heights. You know that our central government has repeatedly said that the door for dialogue is always open. However, at the same time, they made it very clear they're not going to back down to any of these tariffs. So, do you think this firm stance is likely to continue?

Lui: Back in 2018 when Trump announced the trade war, China was in a weaker position than now. So, China tried to be more flexible. And we can remember that there was a company called ZTE which tried to, well, we had to yield. And this company had to pay quite a big sum of money to the US government. Okay, but after that, China has been preparing for this whole conflict. And today, I believe that the optimal policy for the Chinese government is really not to shorten this tariff war too much. Perhaps ... now I'm just guessing perhaps China will come to some deal with the US, at least after two or three months from today, the United States probably has not felt the pain of the whole trade war, but after two or three months, the Americans will feel that the inflation rate will be too high for them.

Chan: Professor, what you're saying is, mainland, we are sort of preparing for this standoff. So, in a way, it looks positive on our side. But as this decoupling sort of increases between the two places, will Hong Kong's special role as a super-connector sort of decrease or fade away?

Lui: Well, realistically, for Hong Kong to get connected with the United States, we have to face a lot of problems, and that does not apply only to international trade. Well, investment, for example, will have to suffer somewhat, and the financial market we also have to endure some negative impact, and also the flow of people, for example, for universities. Hong Kong in the past, has been welcoming a lot of, say, exchange students and foreign students from Europe and the United States. I think Hong Kong can still maintain a pretty good relationship with Europe. But for the United States, it looks likely that the number of exchange students from the US to Hong Kong or Hong Kong to the US, may have to go down somewhat. And this is not very good.

Chan: So, Professor, so you are saying that overall, Hong Kong should be able to mitigate all this negativity, but should the government do anything to help local businesses? Although it's a small amount, Hong Kong is now already facing a lot of challenges because of the downturn in the economy, the cross border of Hong Kong people sort of spending over in the (Guangdong-Hong Kong-Macao) Greater Bay Area? Should the government do anything to help local businesses, especially those who have become the middle person that helps the bridge before?

Lui: Yes, it is very important for the Hong Kong government to continue the policy of openness, and, well, the Hong Kong government has already decided to impose a zero tariff, and that is very important and that is actually very helpful, as I have said, that can attract a lot of tourists. So, Hong Kong should have a position of welcoming further trade with the US, although we know that that is not easy at all. On the other hand, Hong Kong should try to explore more markets, especially to improve, to further improve, the relationship, or the financial or economic relationship with European countries, and traditionally, Hong Kong has had a pretty good relationship with Southeast Asia. Well, during the last couple of decades, that kind of relationship may have declined a little bit because Hong Kong is no longer a manufacturing center. But people living in Southeast Asia actually look upon to Hong Kong as a very important place. So, Hong Kong should try to reinforce this sort of relationship. There are lots of things to do and well, for example, the Middle East. The Middle East is not a very easy place.

Chan: Not at all.

Lui: Not a very easy place but we should make an attempt.

Chan: Alright, Professor. Let's take a short break now and viewers do stay with us. We will be right back.

Chan: Welcome back! We have been exploring the impact of US tariffs with Professor Lui, the Economics Professor from the Macau University of Science and Technology. So, thank you very much for, Professor, for outlining the picture for us now. And it looks like we have to, while we have to mitigate with the challenges, we have to start looking at other markets. You mentioned Middle East, which is not easy, and even the ASEAN countries. What challenges do you anticipate Hong Kong businesses to face? And how can we solve them because people keep on saying “Let's go and find another market”? But if it was easy, people would have gone there before, so what would you suggest people's mindset to deal with this challenge?

Lui: Well, certainly Hong Kong will have to face a lot of hardships. I hope that the improvement or the possible improvement in tourism will alleviate that kind of hardship somewhat. But for the longer picture, for the longer considerations, I believe that Hong Kong should try to rebuild its own economic foundation. Right now, Hong Kong is relying a lot on the financial industry. I believe that that will continue to be pretty strong for Hong Kong. And Hong Kong has been relying on import-export, and also logistics. But now, that is only about 20 percent of Hong Kong's GDP. Well, the more important new thing for Hong Kong to do is actually high-tech. In the past, Hong Kong did not or had not been able to do a very good job in high-tech. But if we try to look at the future, if Hong Kong does not invest enough in the basic research, and also the applications of high-tech, then the future of the Hong Kong economy is rather doomed. It takes a long time, but that is something that Hong Kong should do.

Chan: Right. One area I want to ask you is, with Hong Kong's good financial infrastructure, like we are the offshore yuan hub, can we help, or I won’t use the word “help”, can we assist mainland businesses to mitigate this challenge? Because we can act as an intermediary for the goods to be exported elsewhere, can we have the role on that?

Lui: I am sure that Hong Kong can help a lot. Now China has been trying to develop a kind of an international transaction system, which does not rely only on the US dollar. Perhaps in the future, that kind of system will rely more on the RMB. And Hong Kong can play a major role in this area, but the obstacle is that the total amount of RMB, even in Hong Kong, is rather small, it is a bit less than 1 trillion RMB, 1 trillion yuan. That is not really enough for the RMB to serve as the reserve currency for many of the countries. However, because of the improvement in the digitization of the currency transactions, Hong Kong may be able to do a lot more. Now, we know that the total quantity of money or the total quantity of the RMB is not large. However, the speed of the transactions could be very fast.

Chan: Right.

Lui: Due to, say, various kinds of apps that we have. And with this kind of high speed, even though the amount of money is small, Hong Kong can still try to do a big job in implementing a lot of international transactions.

Chan: Right. Yeah, Professor, you told me you were in the United States for quite some time, only came back in Hong Kong in the last 20-30 years. So, you know the American system very well.  President Trump said that he wants America great again and bring all the manufacturing jobs back in the US. But we saw a lot of AI-generated videos showing tired Americans on the assembly lines. Do you think the fact of bringing the jobs home, is it a real issue or just a political message? What do you think?

Lui: I agree with the vast majority of the American economists, that he cannot bring the jobs back to the US. This is not only my personal assessment.

Chan: Right.

Lui: I mean, how can we anticipate, say, people to come to Hong Kong to engage in jobs like textile and so on? And for the US, well, to protect the so-called low-level jobs, the labor-intensive jobs, it is crazy.

Chan: Right.

Lui: Now, on the other hand, there is one more thing. Well, Trump is supposed to protect the US economy, and the US is good at the service industry, so the United States is enjoying big surpluses in the service industries. But now, Trump is implementing a lot of policies that are hurting its service industries.

Chan: Right.

Lui: Now, for example, tourism is a very important thing for the US. But then, it has been reported that there are many tourists who go to the US, say from Europe or whatever, and then these people have been harassed at the border and they have been sent back.

Chan: Right. Professor, if we put ourselves into the American system now, with probably increased costs because of the tariffs, with less goods to be around, scarcity will also put on the prices; so Americans will be really, really suffering. So, maybe that is the reason why President Trump has exempted some goods, like iPhones, from high tax. So, how do you see the American people, how much pressure are they going to put on this Trump administration to stop this because as you said, there is no winner?

Lui: Well, it will take some time. Well, Trump has raised these tariff issues in just about one month, okay? And that does not allow enough time for the Americans to feel the pain. But Americans do not save too much money, and once their living cost goes up a lot, many people will have to protest. And we are already seeing this kind of protest everywhere in the United States. For example, 12 of the states in the US have been trying to sue the federal government for raising all these tariffs. And the longer we wait, the more will this protest be.

Chan: Would you say the US is in serious trouble, not only in the economy, but actually political stability?

Lui: I actually worry a lot about the political stability. Now, Trump certainly has his own supporters. And even now, according to some polls, some opinion polls, around 29 percent of Americans still believe that Trump is a very honest person he is not telling any lies. Although, during his first term, it has been recorded that he has told 30,000 lies. Well, the Americans, will have to take care of their own president. Trump himself, will have to worry a lot about the public support that he can have. But he is taking advantage of the surge of populism in the US.

Chan: Right. You know, with all these ideas from Trump, I mean, the comment from many actually seemed very impulsive and not fully thought through. Do you agree or think there is actually a strategy behind all these drastic actions?

Lui: It is very hard to predict what eventually will happen in the US. This is simply because Trump's policy has been very volatile, very unstable. As the Nobel laureate, the economist, Paul Krugman, has commented, Trump does not know what his objectives are, and Trump does not know what he is doing. That is a very harsh comment on the current administration. But I do think that there is some truth to it. Okay? So, even if this administration does not know what he will do, what this will do in the future, then they will make it very difficult for us to make any kind of reliable predictions.

Chan: Right. So, thank you, Professor Lui, to help us to navigate all these complex situations. And as we have discussed today, tariffs may disrupt trade, but they also force adaptation. Whether through deeper ties with ASEAN, innovation in finance, or leveraging our unique position in the mainland's ecosystem, Hong Kong has tools to navigate this storm and carve out a new role in a fragmented world. Until next time, I am Eugene Chan, and thank you for watching Straight Talk!