The damage and chaos caused by President Trump's shock 'Liberation Day' tariffs on Chinese goods has been widespread, affecting markets globally.
Even with the recent announcement of a (temporary) mutual reduction in trade measures between the US and China, businesses continue to struggle as they grapple to respond to erratic and unpredictable trade policies between the duelling nations. While the slashing of tariffs on Chinese goods from 145 percent to 30 is a welcome step in the right direction, economists and businesses say the tariffs are still too high and the rollback is not enough to prevent or undo the damage already done. Disrupted trade flows, soaring costs, delayed and/or cancelled orders have triggered a cascade of legal and commercial challenges for businesses operating in Hong Kong. This article explores the knock-on effects of Trump's tariffs, focusing on redundancies, shareholder and contractual disputes, and the increasing necessity for rerouting goods through third countries, all of which have significant implications on the legal and commercial landscape in Hong Kong.
Immediate Economic Impact and Redundancies
Hong Kong, a historically renowned free port and a vital conduit for trade between China and the global market, finds itself in a precarious position amidst the ongoing US-China trade war. Despite its longstanding and unchanged policy of not imposing tariffs on imported goods, including those from the US, Hong Kong is not immune to the repercussions of the trade war. The US is Hong Kong's second-largest export market, accounting for nearly US$38 billion in merchandise in 2024. Sectors such as telecommunications equipment, computers, jewellery, and semiconductors have been the most heavily hit by the tariffs. The tariffs have not only affected large-scale exports but also temporarily ended the "de minimis" exemption for small parcels, placing additional strain on Hong Kong's exporters. Consequently, there has been a sharp decline in demand for Hong Kong exports to the US, with sourcing companies — many of which act as intermediaries between mainland Chinese manufacturers and US buyers — bearing the brunt. As of the date of this article, and following Trump's initial tariff announcement in February 2025, a large number of companies have implemented redundancies. This has raised concerns about potential legal actions, including claims to the Labour Tribunal or the courts, as affected individuals seek recourse amid the economic uncertainties brought about by the trade war.
Shareholder Disputes and Corporate Governance Challenges
The volatility in trade and the resulting financial strain on companies have also heightened tensions among shareholders. Many businesses, especially those with international ownership structures or joint ventures, are facing unprecedented challenges in maintaining profitability and liquidity. Disagreements over strategic direction—such as whether to pivot towards alternative markets, invest in new supply chains, or wind down operations—are increasingly leading to shareholder disputes.
These disputes may manifest as claims of breach of fiduciary duty, demands for buyouts, or even petitions for winding up on just and equitable grounds. The legal environment in Hong Kong, with its robust company law framework and established courts, is likely to see a rise in such litigation as shareholders seek to protect their interests in a rapidly changing commercial landscape.
Contractual Disputes and Force Majeure
The imposition of tariffs has rendered many existing contracts commercially unviable, particularly those that were negotiated before the trade war escalated. Exporters and importers are now grappling with the question of who bears the additional costs imposed by tariffs. This is likely to lead to an increase in contractual disputes, with parties invoking force majeure, frustration, or hardship clauses in an attempt to excuse non-performance or renegotiate terms.
Hong Kong's legal system, which is based on common law principles, provides a framework for resolving such disputes, although litigating cases in Hong Kong is expensive. Requests for advice on contract renegotiation, dispute resolution, and risk mitigation strategies have increased over the last month and we expect this to continue.
Rerouting Goods Through Third Countries: Legal and Compliance Risks
In response to the tariffs, many Hong Kong-based companies are exploring ways to reroute goods through third countries to avoid or reduce tariff exposure. This practice involves shipping goods to a third country where they may be relabelled or undergo minimal processing before being sent on to the US.
While this strategy may offer short-term relief, it raises significant legal and compliance risks. US customs authorities are becoming increasingly vigilant in detecting and penalising circumvention of tariffs, and companies found to be engaging in such practices may face severe penalties, including fines and exclusion from the US market. Hong Kong companies must therefore carefully assess the legal implications of such practices, including compliance with rules of origin, customs declarations, and anti-circumvention laws.
Moreover, the need to establish new supply chains and logistics arrangements often gives rise to further contractual and regulatory challenges, including the negotiation of new shipping agreements, compliance with the laws of third countries, and the management of cross-border disputes.
Conclusion
The US tariffs have set off a chain reaction in Hong Kong's economy, with potentially far-reaching legal consequences for local businesses. The surge in redundancies, shareholder and contractual disputes, and the rerouting of goods through third countries are all trends that we expect to continue. These developments together with the inconsistent and unpredictable approach of the Trump administration's trade policies adds an additional layer of uncertainty and complexity to the situation. As the dynamics of the trade dispute continue to evolve, it is imperative for organisations to remain well-informed about emerging legal issues. Being prepared to address these complexities is crucial for mitigating potential litigation risks and ensuring favourable outcomes should disputes arise.
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