Following months of strained relations surrounding criticism for China’s handling of the Coronavirus outbreak, President Trump has dealt a major diplomatic blow to America’s largest trading partner.

Signing into law a bill that received strong bipartisan support in Congress, the United States can now impose sanctions on Chinese officials, banks, and businesses that help to limit Hong Kong’s autonomy.

China has implemented a controversial national security law that allows for the arrest of peaceful protestors and dissidents in the former British colony of Hong Kong. The law also allows for the integration of Chinese propaganda into Hong Kong’s education system.

Speaking from the White House on Tuesday, President Trump told reporters that “This law gives my administration powerful new tools to hold responsible the individuals and entities involved in extinguishing Hong Kong’s freedom.”

What This Means for America’s Relationship with Hong Kong and China

Hong Kong has enjoyed a special trade and customs relationship with the United States and much of the outside world. When the United Kingdom returned the region to China, it was allowed to operate autonomously, with its own courts and laws based on its British history. Compared to the mainland, Hong Kong citizens were allowed sweeping freedoms of assembly and free speech.

At the handover in 1997, Hong Kong was guaranteed autonomy for at least 50 years, keeping it free to operate as a capitalist society with complete legislative control. China’s new national security law erodes the freedoms that should have been maintained until 2047.

Because of the freedom Hong Kong was given when reintegrated with China, it continued to be a financial, business, and tourism hub.

Hong Kong enjoyed special trade and customs privileges when compared to mainland China. That will now change.

Executive Order to End Hong Kong’s Special Treatment

In addition to the law that allows for sanctions on Chinese entities interfering with Hong Kong, President Trump has also signed an executive order that effectively ends preferential trade treatment. Companies will now have to go through the same trade channels as the rest of China, making them vulnerable to the ongoing trade war and tariffs imposed by the United States.

On the world stage, Hong Kong could become less competitive. Analysts also predict that this will be the beginning of the end of its status as a world-class financial and commercial hub.

This latest development creates uncertainty around the Phase One Trade Deal and any subsequent deals between China and the United States, which could cause difficulties for American exporters in the coming months.