Final answer:
The policy trilemma means a country can't have free capital flow, fixed exchange rate, and independent monetary policy at once. Hong Kong aligns with the US dollar and has no independent monetary policy; the US has an independent policy and flexible exchange rates; China tries to manage a balance.
Step-by-step explanation:
The policy trilemma, also known as the impossible trinity, states that a country cannot simultaneously achieve free capital movement, a fixed foreign exchange rate, and an independent monetary policy. Countries must choose two out of the three. Hong Kong, for example, follows a linked exchange rate system with the US dollar, ensuring a stable exchange rate and free capital movement, but it cannot have an independent monetary policy.
The United States, on the other hand, has an independent monetary policy and free capital movement, but it uses a flexible exchange rate system. As for China, it attempts to balance between these objectives, resulting in a managed float exchange rate system where it controls capital flows and tries to maintain some degree of monetary policy independence.