Brexit could boost case for trade protectionism: HSBC

Britain’s surprising decision to leave the European Union (EU) after 43 years in the 28-nation bloc will likely resurface the case for trade protectionism and barriers to mobility in factor markets, causing greater backlash against free trade, according to a research by a global lender headquartered in United Kingdom (UK). HSBC Global Research in a study, which analyzed the possible impact on Asian equities in the aftermath of the Brexit fallout, said the development raised questions regarding the rising protectionism among others.

“It is possible that the UK’s exit from the European Union could be seen as a broad response to free markets, across trade, capital and labour. If so, this development could raise questions around higher barriers to trade and a potential shift to greater market protectionism,” the bank said.

Campaign for Brexit gained much momentum among those who opposed immigration from Europe, who allegedly have been stealing their jobs. They also charged the annual fund transfers made to EU made a strain on the UK’s budget. However, following the Brexit referendum, London Mayer, Sadiq Khan who advocated for ‘remain,’ said Britain would remain wide open for business to the world. HSBC said the increased uncertainty could delay new investments in the Asian region as the businesses could take a “wait-and-see approach” on how the mechanics of exiting the EU will actually play out, specially if that new investment is contingent on Europe’s economic outlook and if European aggregate demand is negatively impacted.

“There may be longer-term consequences for the location of business activity within the EU, but the bigger near-term risk for Asian corporates is the extent to which European demand is impacted,” the research note added. Many larger corporate have warned of relocating their head offices from UK to Europe if Britain decided to leave. HSBC, which was jockeying for locations early this year decided to keep its headquarter in the UK.

Meanwhile HSBC also said foreign exchange volatility in the sterling pound could have immediate spill-over effects on Asian markets without ruling out the medium and long term effects, especially if the volatility is higher than anticipated. “Furthermore, it is unclear how or whether central banks and other policymakers will react to these risks,” the global lender said.