Beat protectionism, turn to neighbours, advises HSBC

New Delhi: A report of the Hongkong and Shanghai Banking Corporation (HSBC) has advised policymakers in India through a report that the firms in this country should focus “more on their backyard” and increase the share of trade with neighbouring economies — in an environment of rising protectionism in the US. [Related news]

According to HSBC’s global survey, nine in 10 businesses in India feel governments of the countries they export goods to are turning increasingly to protectionism, more than the global average. The survey covered 6,000 companies in 26 markets.

The report reads: “Raising the share of trade with neighbouring economies has been high on India’s agenda for some time, and has become even more important given the rising risk of protectionism in the West.”

The rise in protectionism leads to an increase in the cost of doing international business, altering trade routes and raising hurdles in the process of obtaining trade finance.

In such a scenario, trade initiatives that are likely to lower trade barriers, are viewed positively.

Moreover, companies also adopt strategies like increasing regional trade, establishing joint ventures or local subsidiaries in more markets and capitalising on trends in consumer demands and digital technologies.

Globally, a majority of firms are looking at regional partners to develop trade opportunities, with almost 74% of overseas trade in Europe and Asia-Pacific being conducted within their ‘home’ region, the survey noted.

In terms of region, the sentiment is strongest among companies in the Middle East and North Africa (70%) and Asia-Pacific (68%). In the US, 61% are concerned while in Europe, 50% companies expressed concern over rising protectionism, according to the survey.

“Despite SAFTA, South Asia remains one of the least integrated regions so far. In an environment of rising protectionism in the US, Indian firms should focus more on their backyard, finding mutual grounds to tackle issues such as high transaction costs,” the report added.

The survey further noted that firms are most united in the positive impact of ASEAN 2025 and SAFTA on their businesses. And surprisingly, even with the negative press around H1B visas, most firms (63%) believe that US policies and regulatory environment will be beneficial for their businesses.

The firms are however less optimistic about China’s Belt and Road initiative, with 22% respondents indicating a negative impact on their businesses.

Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.

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