HSBC has sounded the alarm about the impact of higher trade tariffs on economic growth, unemployment and inflation around the world, as it set aside more money to cover bad debts and reported lower profits.
The UK-based bank reported a $200m (£149m) rise in expected credit losses to $900m in the first quarter, as it increased allowances to “reflect heightened uncertainty and deterioration in the forward economic outlook due to geopolitical tensions and higher trade tariffs”.
HSBC said: “A further escalation of tariffs and trade tensions could lead to lower trade volumes, investment, consumer spending and, ultimately, weaker global GDP growth.
“Supply chains could also come under renewed pressure from a fragmented trade landscape, which could cause inflation to rise again.”
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However, Georges Elhedery, the chief executive, said: “Ourselves and our customers as a whole are hopeful that we can see progress in the trade negotiations between the US and a number of parties, including China.”
He added that the group did not forecast the “end of globalisation, but a reconfiguration of globalisation” where trading partner corridors would “continue shifting geographically”.
He also said that it was “critical” that the dollar maintained its status as the dominant currency, saying: “Trust and confidence in this risk-free asset is paramount.” Trump’s trade policy has led to a sell-off of US assets: stocks, government bonds, and the dollar.
HSBC said weaker economic growth and higher inflation created challenges for central banks, which were likely to be more cautious about the timing of interest rate cuts if inflation persists above target rates.
It has modelled different scenarios, and said these would lead to lower revenues, down by a low single-digit percentage, and a further $500m in bad debts.
It calculated that in its central scenario, taking into account higher tariffs announced by the US against its trading partners, and counter-tariffs, GDP growth in the most negatively affected markets could be an average of 40 basis points (bps) lower in the first year, and a further 20 bps lower in the second year. HSBC said mainland China, Hong Kong and Mexico were expected to experience the biggest negative direct effects because of their deep trade and financial links with the US economy.
Unemployment is also forecast to edge higher in many countries as a result of trade wars.
Its worst scenario, which assumes an escalation in tariffs globally, would lead to a “deep global recession”.
