WASHINGTON (BLOOMBERG) – The US is considering a range of sanctions to punish China for its crackdown on Hong Kong, people familiar with the matter said, as the administration weighs whether to declare the former British colony has lost its autonomy from Beijing.

The Treasury Department could impose controls on transactions and freeze assets of Chinese officials and businesses for implementing a new national security law that would curtail the rights and freedoms of Hong Kong citizens.

Inter-agency discussions are ongoing and no decision has been made on whether or how to employ the sanctions, said the people, who spoke on condition of anonymity because the moves are still under consideration.

A Treasury Department spokeswoman declined to comment.

The news curbed a rally in equity markets, sending the S&P 500 to session lows in the final half hour of trading.

Stocks had been looking past the escalating tensions with China to focus on mounting signs that the worst of the pandemic’s hit to the economy has passed. Chipmakers and megacap tech firms that have large dealings with China bore the brunt of the selling.

The State Department is due to certify Hong Kong’s autonomy under the Hong Kong Human Rights and Democracy Act that President Trump signed into law last year – and a negative determination could see the US reconsider Hong Kong’s special trade status.

A senior administration official said the certification announcement could come within a week and said it was doubtful that the US could certify Hong Kong’s political independence under current circumstances.

The Trump administration is facing a challenge in hitting back at China because any harsh penalties aimed at Beijing would likely also harm both Hong Kong – and the US.

The business and investor community has been anxiously watching tensions rise in recent days.

The US Chamber of Commerce on Tuesday (May 26) called on the Chinese government to preserve Hong Kong’s “one country, two systems” framework and on the Trump administration to continue to prioritise a constructive relationship between the US and Hong Kong.

“It would be a serious mistake on many levels to jeopardise Hong Kong’s special status, which is fundamental to its role as an attractive investment destination and international financial hub,” the business group said in a statement.

White House press secretary Kayleigh McEnany said Tuesday that Mr Trump is “displeased” with China’s efforts and “that it’s hard to see how Hong Kong can remain a financial hub if China takes over.”

She declined to elaborate about specific actions the president was considering.

Beijing has repeatedly warned the US not to interfere in what it considers a domestic matter.

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