Warning Bells Ring Out: HSBC Warns of Economic Impact from Escalating US-China Trade War
Financial institution HSBC sounds the alarm over potential disruptions in US-China trade due to President Trump's tariff policies, predicting a substantial decrease in trade activity between the two nations.
In a stark warning, HSBC has sounded the alarm over a looming economic crisis, thanks to the intensifying US-China trade war.
Talking about heightened uncertainty and a significant drop in trade between the US and China, HSBC CEO Georges Elhedery claimed that President Donald Trump's tariffs are steering the global economy towards a reconfiguration.
The trade tiff between Washington and Beijing has also caused some slowdown in the trade activity between the UK and US, according to Elhedery.
In addition, the Bank of England's Sam Woods warned that the aftershocks of Trump's 'Liberation Day' tariff announcement are far from over, with the Chief Executive of the Bank's Prudential Regulation Authority (PRA) stating, "We consider ourselves to be still in the middle of this thing."
To stem the rot, HSBC reported a 25% slump in first-quarter profits to £7.1 billion, mainly due to one-off costs. The bank also revealed an 'expected credit loss' of £650 million, including a hefty £110million to account for heightened uncertainty, with further deterioration in the trade war capable of piling on an additional £370 million.
Worryingly, HSBC has witnessed a substantial decline in volumes along the US-China corridor, with Elhedery expressing optimism over progress in trade negotiations. However, he emphasized the importance of maintaining the US dollar as the currency of choice amidst a sharp slide in its value during recent market turmoil.
Elhedery's critique of the UK's ring-fencing rules is set to cause ripples in the Treasury, as Chancellor Rachel Reeves is pursuing her mission to slash red tape. The rules, which segregate High Street banking arms from more risky investment banking divisions, have become redundant, according to Elhedery, hence increasing costs and stifling competition.
Trade War's Impact on Global Economy
Current Landscape
The US-China trade war continues to cast an ominous shadow, with tariffs resulting in a substantial reduction in bilateral trade. With tariffs reaching up to 145% on many Chinese imports (excluding certain electronics), it has become unaffordable for American buyers to continue ordering goods from China, leading to order cancellations.
HSBC and the Trade War
While the direct relationship between the trade war and HSBC's profits remains unclear, it is generally understood that ongoing trade hostilities and reduced trade between major economies like the US and China could negatively impact financial institutions heavily invested in international trade. Given the exposure of banks like HSBC to both the US and China, they might struggle to manage cross-border transactions and investments amid trade disruptions.
Global Economy: Bearing the Brunt
The trade war has far-reaching implications for the global economy:
- Reduction in Trade Volumes: The imposition of tariffs has led to a decline in trade volumes between the US and China, causing ripples in global supply chains and potential shortages or price increases for certain goods.
- Economic Instability: The ongoing tensions contribute to economic instability by creating uncertainty for businesses, leading to reduced investment and slower economic growth.
- Collateral Damage: Countries outside the US and China may experience collateral damage from the global supply chain disruptions caused by the trade war, potentially affecting global economic growth, trade patterns, and inflation rates.
With the US-China trade war ongoing, its impact on the global economy and financial institutions remains a cause for serious concern.
- HSBC CEO Georges Elhedery has warned that President Trump's tariffs are likely causing a significant drop in trade between the US and China, potentially steering the global economy towards a deterioration.
- In a stark warning, HSBC has highlighted the reconfiguration of the global economy due to the escalating US-China trade war, citing reduced trade activity between the US, China, and even the UK.
- To illustrate the impact of the trade war on banking, HSBC reported a 25% slump in first-quarter profits, partially due to one-off costs and an 'expected credit loss' of £650 million, including £110 million to account for heightened uncertainty.
- The Bank of England's Sam Woods warns that the aftershocks of Trump's tariff announcements are far from over, with the PRA Chief Executive stating that they are still in the midst of the trade war's consequences.
- The trade war's impact on the global economy extends beyond direct trade volumes, with economic instability, potential supply chain disruptions, and slower economic growth in countries outside the US and China being some concern areas.
- In the realm of finance and business, Elhedery's critique of the UK's ring-fencing rules has the potential to cause ripples in politics, as it challenges Chancellor Rachel Reeves' mission to reduce red tape and may question the relevance of rules designed to protect banks from risky investments during times of economic turmoil such as the ongoing trade war.
