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Trade financiers raise concerns about mounting protectionism

Americas / 11-04-18 / by
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The majority of trade financiers from across the globe see US protectionism as the biggest threat to global trade, but experts warn that there are other challenges of far greater concern.

This was revealed at last week’s ICC Banking Commission annual meeting, during which 71% of members of the audience – made up of financial institutions, independent financiers, multilateral development banks and corporates – voted in favour of US protectionism being the top risk to the global economy, during a live poll.

The annual meeting, the theme of which was “Navigating trade in a world of disruption”, dedicated its opening panel session to an in-depth discussion about the ‘new normal’ – and how those that provide – and receive – trade finance can manage and thrive in a world of uncertainty.

Speakers on the panel said they were concerned about the impact of geopolitical tensions on trade, although most downplayed any long-term restrictive effects.

“The anti-globalisation sentiment that we’re seeing, brought about in some cases by economic factors, has led to some tightening of trade policies,” said Patricia Gomes, head of global trade and receivables finance, North America at HSBC, speaking on the opening panel chaired by GTR. “A benign geopolitical environment is important for trade.”

“Protectionism is one of the main risks for our global outlook,” agreed Ernesto Revilla, head of Latin American economics at Citi. “It comes with a big misunderstanding of the benefits and the effects of trade.” Nevertheless, his predictions are not for an “all-out trade war”, forecasting instead a long-term continuation of global trade and “rhetoric”.

Rising protectionism is already having a very tangible impact on businesses and financiers around the world. Gomes referenced the recently published results of the HSBC Navigator survey, which found that, amid protectionist concerns, companies are focusing on trading with partners within their own geographic region rather than exploring opportunities further afield.

“We are seeing a lot more regionalisation of relationships,” she said.

The survey, which incorporates the views of more than 6,000 businesses across 26 countries, found that 61% of companies think that governments are becoming more protective of their domestic economies.

Despite worries about the potential cost of increasing barriers to trade, the vast majority of businesses surveyed by HSBC remain confident about their international business prospects, with 77% of firms still expecting to increase the volume of cross-border trade over the next year.

Another audience poll at the ICC event uncovered a stark divide between companies that feel alarmed (56%) about the shifting policy landscape versus those that are generally relaxed about impending trade policy changes.

According to Gomes, the results are “very reflective” of the feedback that HSBC itself is receiving from its clients. Responses from bank clients are sector-dependent, with those companies in the process of making investment decisions longer than five years typically more alarmed by the changing geopolitical landscape.

She added: “The ones that are not concerned are saying: ‘Is this just a negotiation tactic? We’ve seen elements of the tariffs being watered down. Will there be more watering down?’ They’re not really taking it seriously in terms of actions on their corporations.”

 

Additional concerns

Other panellists were quick to point out that, beyond protectionism, there are other – more pressing – threats to global trade.

“The world is far more multi-polar than it was decades ago,” said Dominic Broom, global head of trade business development at BNY Mellon. “One shouldn’t, in my opinion, over-estimate the knock-on effects of protectionism. Stats show that the losers of protectionism are those that put the barriers in place.”

Broom highlighted financial inclusion as an issue he believes is the biggest threat to global trade. With the long-term trend being for greater globalisation, he said, it is imperative that smaller nations and organisations be afforded the finance availability and reach that they require.

Speaking on the same panel, Daniel Schmand, chairman of the ICC Banking Commission and global head of trade finance at Deutsche Bank, said that “uncertainty” is the biggest threat to global trade, adding that he believes the world is in the middle of a “Cold War” as opposed to a trade war, where “trade and trade finance is being used as a weapon”.

“It’s a combination of protectionism as well as the sanctions regimes against Russia and other countries,” said Schmand. “For me, the more worrying thing is that I don’t understand what the master plan behind it is.” He noted too that world leaders have given little thought to the downsides and defaults of this so-called Cold War, which he finds “really worrisome”.

When quizzed on measures the ICC Banking Commission is taking to tackle protectionism, Schmand explained that the organisation is able to provide data, raise concerns and explain the pitfalls and the unintended consequences – but that there are limits to its reach. “Do we have a direct influence on political leaders? No. Will we make a clear point in the B20 and G20 consultation on how dangerous and counter-productive [protectionism] is to some of the goals that this group has given itself? Absolutely, yes.”

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