HSBC: protectionism will hit trade with US$1.2tn loss
A global trade forecast by HSBC that factors in a new cycle of protectionism following Brexit and Donald Trump’s recent US election victory predicts trade could be hit by the equivalent of a 3%, or US$1.2tn, loss in exports by 2030.
In its base case, the bank, which has drafted the forecast together with Oxford Economics, projects global trade will remain slow in the coming years and stand at around US$50tn in 2030. The ‘protectionism’ loss would see that drop to US$48.8tn.
The imposition of protectionist trade policies would act to reduce global competitive pressures, distort the allocation of resources in the EU, US and emerging markets, thus undermining efficiency, and boost inflation.
“The forecast we have, takes a middle ground, assumes a ‘soft’ Brexit where the UK retains access to a single European market, and there are no fundamental departures from current US policy,” Vivek Ramachandran, HSBC head of propositions, global trade and receivables finance, tells GTR.
“We did model an alternative scenario which assumes a ‘hard’ exit from the EU involving loss of preferential access to the single market, and the new US president implementing a variety of tariff and non-tariff barriers. In that scenario we saw a trade gap of US$1.2tn by 2030 compared to the forecast we have now. A trillion is either big or small depending how you look at it. But US$1.2tn is the GDP of Spain for example.”
At the country level, the UK is the most adversely affected. Goods and services exports are below baseline levels, and on a bilateral basis the forecast sees the UK redirect itself away from the EU and more towards the US and China.
Ireland’s dependence on the UK also makes it vulnerable to Brexit. Although exporters continue to take advantage of the country’s EU membership, shifting their sales towards the bloc and away from the UK, the loss of preferential access to a key export market weighs on Ireland’s economy, reducing supply side potential and actual output.
Outside of Europe, the imposition of goods tariffs by President Trump has a wide-ranging impact. The US itself is forecast to be adversely affected, with output falling 1.1% below baseline in 2020 before gradually recovering to 0.7% below in 2030.
Higher tariffs on imports also have the effect of increasing the cost of a range of imported consumer goods as well as intermediate inputs for domestic US industries.
The negative impact of the alternative scenario is more severe on emerging markets such as Mexico, where GDP is 1.4% below baseline in 2030 and east Asian economies such as China, Vietnam, Malaysia. The forecast predicts restricted access to the US, one of their largest export markets, will reduce export volumes and result in a rapid transition within the exporting sectors, to refocus on other markets.
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