Trade Tensions: What Are the Consequences for Trade Finance?
Although expected and anticipated, the trade war that began in early 2025 has struck minds with its magnitude and numerous twists. As this uncertain context weighs on international trade, Emmanuelle Petelle, Deputy Global Head of Trade Finance, assesses the stakes and challenges of Trade Finance for the coming months.
By Emmanuelle Petelle, Deputy Global Head of Trade Finance
The decisions of the U.S. administration regarding tariffs already have tangible consequences for international trade. The World Trade Organization has significantly revised its outlook for 2025: while it initially projected a 2.7% growth in global merchandise trade for 2025, the WTO now anticipates a decline between 0.2% and 1.5%, depending on the extent of the applied tariff measures. An unprecedented setback1.
North America is expected to be the most affected region this year, with a projected drop of 12.6% in exports and 9.6% in imports, while growth is expected to be very moderate in Europe (+1.0% for exports and +1.9% for imports) and in Asia (+1.6% for both).
An unstable and uncertain climate, not less conducive to trade
Currently, at Societe Generale, we observe that our clients have not, for the moment, cancelled their existing contracts or the mandates they entrusted to us for the issuance of Trade Finance instruments (letters of credit, SBLCs, guarantees, short-term financing). However, we are already seeing a slowdown in new short-term operations (3-6 months) between banks.
More than the tariffs themselves, it is the instability that constitutes the primary concern for clients. The almost daily announcements and bilateral negotiations create a climate of uncertainty that is not conducive to investments, while undermining the trust of countries in one another.
These concerns are clearly reflected in the study conducted by the International Chamber of Commerce (ICC) last April: the increase in costs worries 64% of the surveyed companies, followed by uncertainties regarding planning (47%) and disruptions in supply chains (45%).
Towards a reorganisation of trade corridors
The most significant impact of this new geopolitical context is likely to be felt next year when companies will have finalised their revisions of investment decisions, budgets, and forecasts and obviously when tariffs are more stabilised with the US.
Certain sectors, such as automotive, agribusiness, or renewable energies—particularly affected by threats of tariffs as high as 3,521% on solar panels from Southeast Asia! 2—will be more impacted than others. But considering uncertainties regarding interest rates, exchange rates, and export volumes, all companies are currently in a phase of reevaluating their commercial and financial indicators, even their strategies.
This new configuration points towards a redefinition of trade corridors. Chinese exporters, for example, will intensify their presence in other markets such as Europe, the Middle East, Africa, and Asia. Attempts to circumvent tariffs through third countries are also to be anticipated, while some countries may benefit from this situation through shifts in flows and production.
India, with its skilled workforce and competitive costs, could thus play a major role in the reshaping of global trade. It is already attracting investments like those from Apple3, which plans to shift a significant portion of its iPhone assembly there.
An impact on the financing needs of companies
Moreover, despite the uncertain context, several underlying trends are being accelerated by the trade war, starting with the desire of Europe and the U.S. to reindustrialise. Strategic sectors for investment include battery production, IT data storage centers (data centers, cloud), and industries in the defense and space sectors. At the same time, while the development of renewable energies and decarbonization projects are not fundamentally called into question, they could be slowed down due to rising tariffs on Chinese products that increase project costs.
Clearly, to cope with uncertainties and changing investment priorities, companies will need liquidity. The impact of the international context will clearly be felt on working capital needs to finance inventories, purchases of key components at higher prices due to rising tariffs, with a need for more diversified raw material supplies to avoid concentration of purchases in one country. We already have many financing solutions: short-term loans, letters of credit, import/export guarantees, receivables discounting...
In this new context, these classic instruments remain entirely relevant and adequate. Just to clarify: with the implementation of the Basel III reform, banking institutions have somewhat less leeway than in the past. They must comply with increased capital requirements while facing growing demands for regulatory requirements (capital reporting, ESG data, anti-money laundering, etc.), which weighs on credit capacities and the overall profitability of banks.
An opportunity to accelerate the digitalization of Trade Finance
This situation should push all Trade Finance players to accelerate the digitalization and streamlining of processes, to gain efficiency while containing the cost increases linked to new regulatory requirements. France has already made significant progress on this issue, with the support of the Ministry of Finance. However, the MLETR (Model Law on Electronic Transferable Records), adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 2017, has only been transposed to date in about ten countries...
Fortunately, some topics are progressing faster than others: this is the case for the digitalization of instruments involving fewer actors, such as bank guarantees, which only require three stakeholders (ordering party, beneficiary, and bank).
Societe Generale is actively involved in the movement for the digitalization of trade financing (letters of credit, forfaiting). Since its inception, we have supported the ICC - Paris Europlace Initiative to accelerate the adoption of digital solutions in France. Societe Generale actively contributes to the working groups created by the initiative, particularly in the advocacy pillar, promoting dialogue among stakeholders across the entire trade community. Efforts are underway to develop several proofs of concept (PoC) with various clients from both commodity and non-commodity sectors and their banking counterparts worldwide, to assess the practical applicability of different tools and platforms.
To accelerate the movement globally, efforts to educate states and various stakeholders on this topic must therefore intensify, to better explain to regulators how the digitalization of instruments contributes to the fluidity and security of international trade. A more relevant issue than ever.