How might tariffs affect trade finance

One of the great unknowns of the US election is the impact a new administration might have on global trade. In the runup to the November 5 vote, both parties have upped the rhetoric around tariffs, but Republican nominee Donald Trump has generated the most headlines with a plan to bring in a 60% tariff on all Chinese goods.

Such a move would build on the duties of either 7.5% or 25% that the former president imposed on more than $300 billion worth of Chinese goods during his first term (2017-2021)-and has raised the specter of a renewed US-China trade war.

Would a change in US administration hamper the trade finance market?

During the previous trade ructions, one market we watched with some interest was the US-China soybean trade. China is the world's largest consumer of soybeans and was the US's largest export market until the US brought agricultural products into its tariff policy. Over the course of one year (2018), the US-China soya trade flow fell from approximately $20 billion annually to just $3 billion.

The fall in US soy exports caused many ripple effects, not least forcing China to diversify its soya imports and seek new suppliers. It's exactly this type of "south-to-south" transaction that requires a trade finance solution to de-risk it, while leaving room for attractive returns.

The bigger picture

Another effect of the former administration's focus on trade was the popularisation of terms such as nearshoring, friendshoring and ally-shoring. We believe this is just a step in a larger and longer-running macro trend with wider ramifications for the trade finance space as a whole.

Global merchandise trade volumes have grown from approximately $14 trillion in 2007 to $25 trillion in 2022. It is interesting to note that within this growth, the expansion in emerging-economy-to-emerging-economy trade has outpaced its peers. Our view is that a reignited trade war would increase momentum behind this trend.