Geopolitical Upheaval: Mapping the Consequences for Trade Finance

The global trade landscape continues to develop at pace, with the value of goods and services hitting an all-time trade high of $33tr. in 2024, according to the UNCTAD Global Trade Update for December 2024. It does so despite the persistence of inefficiencies inherent in trade’s paper-based documentation processes and, frankly, cumbersome old-world practices. And now, of course, many trading partners are exposed to the additional risks created by new and emerging geopolitical crises. 

These risks, notes Petelle, represent not only a “major disruption” to traders and trade finance but also to the trade process itself. Business confidence between countries is being eroded by certain political actions and responses, not least around trade tariffs, which, though broad-based, have impacted the automotive and electronics industries particularly hard. These concerns are clearly reflected in the study conducted by the International Chamber of Commerce (ICC) Pulse Survey of April 2025: the increase in costs worries 64% of the surveyed companies, followed by uncertainties regarding planning (47%) and disruptions in supply chains (45%).

The degree of unpredictability faced by trade has caused some downward revisions of growth forecasts globally, with the prospects of lower revenues for all companies exposed to the US. The World Trade Organization (WTO) issued a report expecting the volume of world merchandise trade, under current conditions, to fall by 0.2% in 2025. The decline, it noted, is expected to be particularly steep in North America, where exports are forecasted to drop by 12.6%.

Petelle comments: “We had a number of clients that were planning to invest in the US but who now feel they cannot pursue those investments in such a volatile environment. Therefore, I have seen some sectors already facing major disruptions in their innovation programmes, such as the auto sector’s shift towards Electric Vehicle production.”

The Changing face of trade

To counter tariff-based revenue losses, China is beginning to export at a much faster pace outside of the US, generating “fierce competition” in its target markets, notes Petelle.  “While their revenues are uncertain, many of our corporate clients are looking to increase their cash reserves, but they do so at the time when short-term rates in Europe are heading lower. In the US too, corporates will be considering putting aside more cash to manage their inventories and running costs in this unsettled environment.”

Of course, uncertainty leads to budgeting challenges. This is leading to companies accessing the bond markets in greater numbers this year, and an increasing uptake of supply chain and receivables programmes, as firms seek to secure funding.

“In the midterm, we’re anticipating a negative impact on certain corporate investments, for instance, in renewable energy,” says Petelle. “More generally, corporates will have to revise project planning costs versus revenues as they are forced to rerun their business plans, especially in the US where the price of key components from China are rising.”

There are few positive factors that businesses can input into their project mix. A weaker US dollar and lower cost of energy could help cyclical industries to an extent, she suggests. Europe is also heading towards lower short-term rates (long-term rates are “a different story”). This may assist companies seeking transformation, such as those in petrochemicals, where such rates may balance out some of the uncertainties, even if they will not necessarily compensate for lower overall revenues.

In the longer term, there is a need for reindustrialisation in Europe. “We’ve seen that especially in the aerospace defence industry where the push is to become more independent, but also in terms of the region’s capacity to host other critical industries. It will also raise the debate across Europe as to the extent of imports of advanced technologies from China.” The direction of those investments will inevitably demand funding as state support is uncertain, Petelle notes. However, a long-term trend remains in certain sectors where, for the time being, investments are not being scaled back on data centres, for example. And while renewable energies may currently be less in favour in the US, they are “still a priority for most countries”. 

With many trading nations rerouting their channels, there is an increased support for “some large renewables projects” in Europe, in the Middle East and Africa, involving Asian and European companies. Indeed, China, over the past few years, has been diversifying and developing trade routes into Latin America, and India is stepping up its involvement in the Middle East and Africa. These new corridors will likely persist once established.

Still fit for purpose

Despite rampant trade uncertainties, treasurers are typically well equipped to manage, believes Petelle.  “A number had pre-empted tariff increases, with Chinese and European companies building factories and developing projects in the US, for instance. But we are still active with short-term trade solutions, especially LCs and guarantees, continuing to secure our clients’ imports and exports.”

The lack of new financial products in trade, despite a clear need for support, indicates that "classical” offerings remain generally fit for purpose. The challenge comes as smaller firms, or those with high-volume and low-value trades, try to protect their financial interests, says Petelle. “It’s going to be slightly more difficult in some cases because the cost of these tools is quite high for the banks, especially when you add in capital allocations needed on the bank side, and the cost of processing documentary credit.” It creates an environment where banks are becoming even more selective in terms of clients, countries and the size of deals they wish to accommodate. 

The case for digital engagement

However, the push for digitisation of trade finance, at least among certain products such as the eLC, the Swift MT760 e-guarantees (for standby LCs), and even documentary collections, should help boost stakeholder connectivity, drive efficiencies, and reduce processing costs, potentially even opening up new trading opportunities.  The arrival of secure multi-bank trade finance platforms such as Komgo has also helped to introduce different stakeholders to digital trade, although many other platforms have come and gone, being technologically sound but failing to generate critical user-mass.

Trade documentation therefore remains paper intensive. It has been calculated that for each transaction, up to 36 documents and 240 copies are typically involved, resulting in an estimated four billion new paper documents per annum exchanged by banks. Besides which, compliance verifications against circa 400 ICC rules remain substantially manual and time-consuming. It creates, for instance, a process that can take up to 15 days to execute a single paper-based LC, regardless of its amount and counterparties.

To its credit, the ICC Digital Standards Initiative’s (DSI) 18-month journey towards its Key Trade Documents and Data Elements (KTDDE) report, is seeking to harmonise 36 key trade documents. Such co-ordination of trade documents is a vital step towards global interoperability.

While electronic systems exist to overcome some of the issues, Petelle suggests that “there is a certain lack of willingness” among some countries to proceed with the transfer of documents into an electronic state, primarily because it requires significant investments in technology.  However, she says that the Model Law on Electronic Transferable Records (MLETR) has been created to provide a legal technology-neutral framework that enables their use. The adoption of this framework, she believes, is a necessary next step towards the digitisation of trade. 

But only 10 countries have so far adopted it. The ICC has set an ambitious goal of 100 MLETR-compliant countries by 2026. As an interested party, Societe Generale is a firm ally of this project. It also fully supports the Paris Europlace initiative to accelerate the adoption of digital solutions in France. The critical areas of focus here are on e-BLs, e-LCs and digital documentary collections. 
MLETR provisions were enacted in France in June 2024, with full applicability expected in the first half of 2025. Societe Generale actively contributes to the working groups the initiative created, notably its Advocacy pillar. This is driving deeper dialogue among stakeholders from across the trade community. Efforts are underway for the development of multiple proofs of concept (PoCs) with several commodity and non-commodity corporate clients and their banking counterparts worldwide. 

Despite obvious points of progress, it’s all taking longer than expected, the reason, explains Petelle, is that not only do many countries have more important items on their agenda right now but also trade finance – a complex topic at best – is a subject that all too often goes unnoticed by politicians.

“It’s definitely a question of investment in education,” she states. “Considerable work remains, particularly in emerging markets where legal and technical infrastructures, as well as the ability to invest in change are somewhat lagging.” 

Technology has a clear role to play, and in terms of mitigating trade risk at a product level, Petelle has already asserted above that traditional solutions remain fit for purpose. But when it comes to opening up and operating in a new jurisdiction, most international bank clients also value the local knowledge and experience offered by their providers. “It’s not only about technology and product set, it’s also about being able to advise clients on guarantee wordings and facility clauses.”

Working in the backgound

While digitisation will continue to play a major role in the process efficiency of trade finance, banks are working on automation as a means of lowering the cost of transactions. Straight Through Processing (STP) is a common goal among them, notes Petelle. This ranges from front to back office, and necessarily includes compliance checking, especially regarding the increasing burden of European AML laws. “We are closely scrutinised on this. But the cost of those checks is increasing and we need to automate this for all transactions, and for some time, we’ve been expanding our use of AI to assist.” 

Despite increased regulation, complexity, risk, and costs in trade finance, there hasn’t been a recent exodus of providers. However, as noted above, some institutions are becoming more selective about the clients and countries they serve, and smaller or low-value traders are experiencing limited access to trade finance, indicating that there is still significant work to be done behind the scenes. 

“It’s vital that banks continue working on mutualised platforms, secure exchanges and the standardisation of interconnectivity,” comments Petelle. “It’s why Societe Generale continues to collaborate with Swift on e-guarantees, for instance. In fact, we think that the more standardisation there is in the industry, the better it will be for all stakeholders.”

She continues: “Corporate clients still need a range of funding solutions across the world. Of course, banks will continue to seek out appropriate fintech partners, helping them to develop the right solutions and reach for each market, so for the time being, we don’t see any major disruption in trade finance products.”

Facing the future

On the other hand, current levels of disruption by other elements are all too real. Even though in the short term, flows between banks may have been slightly restrained, Societe Generale’s own pipeline “remains steady”. The true impact of recent events will not really be observable until 2026, comments Petelle. With the trade space facing continued volatility, it’s time for action now. Key pointers for the industry include encouraging the adoption of favourable legal frameworks, such as those promoted by the ICC DSI (notably KTDDE and MLETR). 

“There is also a need to further promote dialogue within the industry as partners seek to identify the most effective interoperable solutions,” says Petelle. “The road to digitalisation is long, and we must continue to build it with banks, fintechs and other partners.” When that happens, she concludes, “all stakeholders will benefit from productivity gains, and it will enhance trade security and confidence across the world”.