Supporting trade in a new world order

Trade and tariffs have become a staple of the mainstream news agenda. So, it is no surprise that we are being asked about what this means for our clients, the financial sector and the global economy.

HSBC is the world’s largest trade finance bank. Our international network gives our clients access to 85% of global trade flows, including high-growth markets such as ASEAN, India, mainland China and the Middle East. We’re also a major foreign exchange house and payments provider.

We are a truly global bank, giving us an unrivalled perspective on how geopolitical tensions are reverberating across global markets.

So we are looking ahead to understand the longer-term impact of tariffs and how they will reshape patterns of international trade and capital – allowing us, for example, to help US-based funds diversify their investment portfolios into Asia and the Middle East, or facilitate acquisition finance for a Middle East acquirer in Asia.

Changes to monetary and fiscal policy by countries seeking to counter tariffs, boost growth or increase defence spending, have already led to currency movements, significant changes in bond prices and stock market volatility.

Without the ability to trade and invest, there can be no economic growth. Therefore, banks such as ours have a duty to support customers more than ever in these uncertain times.

Many of our clients operate across multiple countries. Multinational corporates often rely on international suppliers and international customers, while financial institutions assess their investment opportunities and risk globally. They want to manage effectively the impact of currency and interest rate movements on their businesses, and have secure cross-border payments.

Fortunately, foreign exchange and capital markets have continued to function well. While these are not normal times, this is not like the 2012 eurozone crisis or the 2008 global financial crisis. The liquidity is still there to support trading and investment. Business is getting done.

This is also not the end of globalisation. The world is not neatly dividing into blocs as we saw with communism and capitalism in the twentieth century. What we are experiencing now is the shifting of sands as the financial sector adjusts to a new world order – reglobalisation and new global supply chains and trade corridors.

The pace of change may be faster, but this type of change is not new. Since HSBC was established in Hong Kong in 1865, the patterns of trade and finance have been constantly evolving.

Over those 160 years, there have been many difficult periods of instability. There were two world wars and widespread regional tensions. There have also been long periods of peace and economic growth.

But despite the current geopolitical and economic challenges, international trade has continued to grow. And the financial world has become more pluralistic and more intricately and deeply connected.

Our bank was established to finance trade between East and West. We’re still doing that today. But the financial map is dramatically different.

In the last five years alone, we’ve seen, for example, a surge in trade and investment between Asia and the Middle East. We’ve seen investor perceptions of India improve markedly, and a massive increase in trade and financial flows between China and its neighbours in Southeast Asia. China, which played a leading role in changing patterns of trade over the last decade, has also established a strong presence in Mexico to be near the important US market.

In short, economic power has shifted towards Asia and become the world’s largest economic and trading region. Hong Kong is not just a regional financial hub, it is a global hub - bringing together companies and investors from Europe, the Americas, the Middle East and the rest of Southeast Asia.

At the end of this month, we’ll be meeting with more than 3,500 clients at our Global Investment Summit in Hong Kong. A significant number of these companies are from outside Asia. They’ll be coming together to expand their networks and assess the impact of new patterns of trade and investment and emerging technologies.

And while international trade may be impacted this year by tariff vicissitudes and expected slower GDP growth in the US and China, there will continue to be opportunities for expansion and investment.

Germany’s proposed €500 billion infrastructure fund has compounded NextGenerationEU’s €800 billion-plus post-pandemic fiscal stimulus, acting as a boost for European stock markets.

Many of these infrastructure projects in Germany and the rest of Europe - construction, defence, energy transformation, and digital infrastructure - will also need a combination of long-term government finance and private sector investment. With the continuing focus on carbon efficiency and the transition to net zero, the adoption of new technologies will be important to ensuring continued momentum for the transition economy.

Companies will, therefore, need to consider how to adapt their business strategies and whether to diversify supply chains and export markets. In all likelihood, they’ll be turning to bank lending, the public capital markets and even private credit to help them grow.

We expect to see more detail on 1 April on US trade policy, following a comprehensive review by the US Administration. But the global economic and political climate is complex. There will remain many unknowns.

In the face of these challenges, we’re not standing still. We’re harnessing new technologies to analyse financial markets and data and assess and manage risks. And we’re committed to sharing our global expertise and insight with our clients to help them navigate change and find opportunities for growth.