Container ships sailing in the ocean with birds flying above them.

The possibility of a looming trade war won't just impact retailers and manufacturers -- banks, too, could feel the effects. Image source: iStock/Thinkstock.

The new presidential administration seems intent on transforming the global economic order. After decades of promoting free trade and closer integration between trading partners, the conversation at 1600 Pennsylvania Ave. has veered toward reinstituting tariffs and other types of border taxes.

For companies in the manufacturing and retail industries, the impact of this seems relatively clear: It will raise the cost of raw materials imported from abroad and change the calculus of outsourcing labor to places like Mexico and China. But what's less clear is the impact this will have on banks, and specifically the biggest banks in the United States.

Protectionism and Bank of America

One such bank is Bank of America (BAC 4.95%). With $2.2 trillion worth of assets on its balance sheet and operations that facilitate the flow of capital around the world, it seems inevitable that a more protectionist global economic order will impact the nation's second largest bank.

Just how much a movement toward protectionism will effect Bank of America is hard to determine. It's a large and complex company that's often hedged in such a way to ensure that economic and political trends can have positive and negative repercussions.

Take interest rates as an example. Higher rates are good for Bank of America because they will boost the yield on its loan portfolio, and thus bolster the bottom line on its income statement. Yet, because the value of fixed-income securities falls when rates rise, it will hurt Bank of America's balance sheet.

The same is undoubtedly true when it comes to an increase in protectionism, which is really just another way of describing a low-level trade war. A stronger dollar will almost invariably accompany such a turn of events. And like interest rates, it seems safe to assume that Bank of America will be hedged in a way to gain and lose if this were to happen.

Estimating country risk

There's also the possibility that an increase in protectionism will throttle the flow of capital around the world. This is something that universal banks such as Bank of America rely on for substantial revenues. Outside its corporate headquarters in North Carolina and the offices of its investment bank in New York City, Merrill Lynch's global markets operation in London is one of its most important physical presences.

It's true that Bank of America isn't as internationally focused as, say, JPMorgan Chase or Citigroup, but it's still a major player in the flow of capital across borders. You can get a sense for this by looking at Bank of America's so-called "country risk."

Bank of America defines country risk as "the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies." This may go without saying, but an increase in protectionism hits on all of these marks.

In an effort to apprise investors of its exposure to country risk, Bank of America publishes its 20 largest non-U.S. country exposures. The list is topped by the United Kingdom, where the bank had $48 billion worth of net country exposure at the end of last year. That's followed by Germany at $22 billion, Canada at $19 billion, and Japan at $15 billion.

Country

Bank of America's Net Exposure

United Kingdom

$47.7 billion

Germany

$22.4 billion

Canada

$18.8 billion

Japan

$15.0 billion

Brazil

$13.7 billion

Source: Bank of America.

All told, Bank of America's net country exposure to its 20 biggest international markets adds up to $212 billion. This is somewhere in the neighborhood of 85% of its total net country exposure, and it equates to a little less than 10% of the bank's total assets.

To put these figures into perspective, at the end of the third quarter, Citigroup had $525 billion worth of exposure to its 20 biggest international markets and JPMorgan Chase came in at $293 billion. Based on these figures, it seems like Bank of America faces less risk from protectionist policies than these two close competitors.

Relatively speaking, this seems like good news for shareholders of Bank of America. At the same time, it's important to note that looking at a bank's net exposure to international markets is only a rough proxy for assessing the potential impact of a trade war, which certainly doesn't seem like it'd be in anyone's interest.