HSBC was surprised at the impact of higher trade tariffs on economic growth, unemployment and inflation as it set aside more money to cover up bad debts and report lower profits.

The UK-based bank reported an estimated credit loss increased by $200 million (£149 million) in the first quarter as it added allowances that “reflect uncertainty and deterioration in the forward economic outlook” due to geopolitical tensions and higher trade tariffs.

"A further escalation of tariffs and trade tensions could lead to lower trade volumes, investment, consumer spending, and ultimately weaker global GDP growth. Supply chains could also be subject to new pressures from a fragmented trade environment, which could lead to inflation rising again," HSBC said.

The lenders said weaker economic growth and higher inflation have challenged central banks, which could be more cautious about the timing of lowering interest rates if inflation continues to be higher than the target interest rate.

It has established different programs and says these will lead to lower revenues while units are lower and another $500 million in bad debt.

It calculated that in its central case, GDP growth in the most affected markets could be an average reduction of 40 basis points (BPS) in the first year, while GDP fell by 20 BPS in the second year, given the higher tariffs announced by the U.S. on its trading partners, as well as counter tariffs. HSBC said mainland China, Hong Kong and Mexico are expected to suffer the biggest negative impact because they have deep trade and financial ties to the U.S. economy.

Unemployment rates are also expected to increase in many countries due to the trade war.

Its worst case scenario escalates globally, which will lead to a “deep global recession.”

HSBC’s warning was posted as Donald Trump’s unstable trade war sparked transportation to the most important U.S. ports, a growing risk of the world’s largest economy’s recession. During the same period a year ago, the number of ships planned to arrive at the port of Los Angeles next week has dropped by almost one-third.

HSBC reported pre-tax profits fell 25% to $9.5 billion, down $3.2 billion as profits increased last year due to sales revenue from its banking business in Canada and its entire division in Argentina.

Revenue fell 15% in the first quarter to $17.6 billion, reflecting the absence of operations in Canada and Argentina. Beyond this impact, revenue has increased as it gains more clients in Hong Kong’s wealth sector, with its debt and stock markets benefiting from volatile markets.