Question Answered: Trade finance rides to the rescue

Trade & Supply Chain

Question Answered: Trade finance rides to the rescue

Published: Jul 2025

“How have tariffs impacted demand for trade finance?”

Natasha Condon

Global Head of Trade Sales, EMEA

J.P. Morgan

We sell trade finance products that provide risk mitigation and there is certainly a perception that maybe the world has got riskier. One way our clients are managing uncertainty is by ensuring they have enough cash in the right places, which means knowing where in their supply chains they might receive a cost from tariff policy. We are seeing an uptick in receivable financing and discounting on all our existing products, and outside this we’ve seen clients look at the debt capital markets and add banks to their bank groups for RCFs (revolving credit facilities).

Suppliers and buyers are having difficult negotiations on who pays for tariffs and the extent to which it can be passed on to end-consumers. The answer is it will probably be a combination of these things, and trade finance products can help with this. We offer a supply chain finance product that allows buyers to offer their suppliers supplier financing. Using the buyer’s credit line, the supplier gets paid earlier than they otherwise would have in a benefit for the supplier. It’s now being used in negotiations between buyers and suppliers today as companies navigate sharing the cost of tariffs.

A protectionist world implies that costs will go up across the supply chain of the average company and trade finance tools can help reduce costs, increase efficiency and support faster payments. Also, if companies are no longer able to profitably sell into the US or China and begin to look for customers in new countries, trade finance products like the good old-fashioned Letter of Credit are designed for this scenario. If you are an exporter selling to a customer you don’t know, in a country you are not familiar with, banks like us have relationships with customers and their banks. We can step into that gap and cover that risk for you. It takes time for trade to shift, but we are expecting an uptick in demand for LCs. We also expect an expansion in our work with other banks with whom we can collaborate to allow a deal to get done between companies selling to each other for the first time.

I don’t see a big change in the risk of trade finance from downgrades in corporate creditworthiness. However, tariffs are paid out of gross profit margin at the end of the day, and large corporations with deep pockets can absorb this easier than smaller corporations. It’s too early to see the impact on smaller companies, but they are likely to experience more stress than larger corporations and have less ability to share the cost of tariffs with large customers or suppliers.

So far, any change in the use of the US dollar in global trade flows is more theory than practice. On a limited basis, we are doing more RMB trade finance than three years ago, but this is linked to our expansion in China. We are doing more in euros too, however the majority of trade flows remains in US dollars. We will react to what our clients are looking for, but as a trend, we don’t see it as a huge move yet.

Regarding FX, we are seeing some clients think about arbitraging base rates. Corporates with global supply chain finance programmes can draw on dollars and euros from their purchasing centres in the US and Europe to buy from suppliers in these countries. They are now expanding these programmes into China because the RMB base rate is low. It’s a great deal for suppliers in China right now because the base rate is so low their cost of financing is also low.

We run one of the largest trade asset distribution shops and work with 100s of investors, and we are seeing enduringly strong investor demand for trade finance assets. The market is liquid and trade finance assets are regarded as a desirable asset class despite the change in global trade flows.

Benoit Urbin

Managing Director of UK and Ireland

Coface

Amid rising protectionism and geopolitical volatility, trade finance and insurance are essential for business stability, offering risk coverage and real-time insights into partners’ financial health. With 2.5 million buyers currently under exposure on our books, we are detecting increased activity from clients reassessing risk in light of protectionist trade shifts.

We have already seen trade routes shift, with container bookings from China to the US dropping sharply and European exporters facing more competition. The threat of tariffs is having a significant impact on business and consumer confidence has weakened, particularly in the US. A notable change we have observed is businesses looking to “connector countries” like Vietnam, Thailand and Brazil, which benefit from shifting trade routes and lighter tariffs.

We are also observing a gradual deterioration in corporate credit profiles and companies exposed to volatile commodity prices or reliant on complex, multi-jurisdictional supply chains are particularly vulnerable. We see risk in four key areas:

Supply chain disruptions linked to the rerouting of trade flows.
Weaker trade growth due to market access constraints and overstocking.
Increased operating costs from managing divergent trade regimes across blocs.
Rising political and social uncertainty.

For trade finance providers, the key risks now include increased credit risk stemming from these weakening corporate profiles, as well as heightened political and economic instability in certain markets. Currency inflation pressures also exacerbate repayment risks.

Trade instruments are crucial when dealing with unfamiliar buyers, offering protection against non-payment and helping to establish trust. As supply chains shift, trade finance providers must adopt more dynamic risk models, regularly updating exposure limits and underwriting based on advanced analytics.

Eniola Adesanmi

Head of Management Assurance

Guinness Nigeria and former Head of Treasury

The proposed US tariff increases on Nigerian goods, along with the potential cessation of AGOA, could significantly affect the competitiveness of Nigerian products in the US market. This impact would likely be felt by both manufacturing companies and the financial institutions providing trade finance facilities. It’s worth noting that tariffs could potentially either increase or decrease this demand.

Several factors could contribute to a reduced demand for trade finance. For example, higher tariffs could increase the cost of imported goods, leading businesses to naturally reduce their import volumes and, subsequently, the need for import financing. The uncertainty and perceived risk associated with tariffs could lead banks to charge higher interest rates or fees on trade finance facilities, potentially discouraging international trade and lowering demand for financing.

Tariffs might also disrupt existing supply chains, forcing businesses to restructure their models and rethink their sourcing and distribution networks, potentially leading to less international trade and a reduced need for trade finance. For banks with a significant presence in trade finance, tariffs like the proposed 14% on Nigerian exports to the US could also reduce overall revenue and profit margins. Banking executives often find export transactions more attractive due to the inflow of foreign exchange. A decrease in dollar inflows could negatively impact bank earnings and their ability to meet FX obligations.

Conversely, there is also the potential for increased demand for trade finance to fund trade. For example, importers may require additional financing to cover the upfront costs of tariffs, potentially increasing the demand for short-term trade finance facilities. Faced with potential tariffs in traditional markets like the US, Nigerian companies might seek to explore and develop new markets, leading to an increased demand for trade finance to support export expansion.

In another scenario, higher tariffs on imports could incentivise local production. Governments might use tariffs to encourage investment in domestic industries that produce substitutes for imported goods.

Companies investing in local production may require financing for importing specialised machinery. We are currently observing this trend in the local ethanol production sector, possibly driven by significant tariffs on imported undenatured ethanol.

Despite the potential impacts of tariffs, trade finance remains crucial for manufacturing companies in Nigeria, including Guinness Nigeria, especially given the current economic climate characterised by a significant, though decreasing, reliance on imports, FX rate volatility, working capital needs and export expansion initiatives.

Still, Nigerian companies face several challenges in accessing trade finance of which high costs is one. Instruments like Letters of Credit can have substantial associated costs, including interest and transaction fees, which can be particularly burdensome for smaller businesses.

Economic Instability is also a factor. Perceived high risk due to economic instability in Nigeria can lead international banks to charge more or even reject trade finance applications from Nigerian companies. Inadequate financial Infrastructure is also an impediment – limitations in credit information systems and other financial infrastructure can make it difficult for banks to assess the creditworthiness of some local businesses and offer suitable trade finance solutions.

While these challenges affect most companies in Nigeria, larger companies like Guinness Nigeria are often better positioned to navigate these hurdles due to their scale, reputation and proactive financial strategies. The recent change in ownership from Diageo to Tolaram may also bring new perspectives and opportunities.

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