International trade is in flux, with potential new tariffs, shifting trade alliances, and geopolitical stand-offs putting supply chains under pressure. And while this situation isn’t totally unprecedented, it’s arguably been decades since we’ve seen this level of global trade tensions.
For companies that rely on global markets, imports, or exports, it makes it harder to plan for the future. But while uncertainty is unavoidable, being unprepared isn’t. Finance leaders must take a proactive approach, and there are a number of practical ways to do this.
Whether it’s dealing with Trump-era tariffs, regulatory shifts in the Eurozone or trade tensions in the Asia-Pacific region, companies that anticipate change and plan accordingly will have a major advantage over those that simply react.
Trade disruptions that could reshape global commerce
International trade has always been subject to geopolitical shifts, but recent developments are particularly disruptive. Some of these are making daily headlines (i.e. anything related to President Trump), while others with the potential to have just as big of an impact are flying under the radar. Here are some of the key issues finance leaders need to be across:
1. The return of Trump tariffs?
Obviously we can’t talk about global geopolitics and trade without talking about Donald Trump. One of the biggest potential disruptions to global trade is the possibility of renewed tariffs under a second Trump administration.
The past few weeks have seen seesawing announcements and a huge number of different figures being presented, meaning any specific tariff rates outlined here could be out of date by the time this article is published.
Some of those headline rates that have been discussed include a 25% tariff on goods from Canada and Mexico and talks of a further 10% tariff on Chinese goods. This is in addition to the 10% tariff which came into force earlier this month.
Whatever the final numbers, one thing appears certain. The Trump administration is determined to make good on the pre-election promises of significant tariffs on foreign trade, and the implications could be significant. Some potential impacts could include:
- Rising costs for manufacturers that rely on imported components.
- Increased prices for consumer goods, potentially dampening demand.
- Supply chain reconfiguration (and potential for substantial capital costs to do so), as businesses seek alternative sourcing options.
- Retaliatory tariffs, which could make US exports less competitive abroad.
For US companies dependent on global trade, all of this throws up the potential for some serious hurdles that need to be addressed.
2. The Eurozone’s uncertain future
Cross the Atlantic Ocean and Europe is dealing with its own set of issues. The most obvious is of course the war in Ukraine, which has thrown European energy markets for a loop and caused a major re-think in energy policy across the continent.
These energy challenges have had flow-on effects to manufacturing and industrial output, particularly in the driving forces of the EU economy in France and Germany, while the rise of protectionist sentiment in the US is forcing the UK and EU to reassess their military capabilities.
All while the UK and EU are grappling with some of their biggest challenges in years, political will is being split on many contentious issues such as inequality and immigration, making it hard for governments to work together and find solutions to these problems.
3. Trade tensions in the Asia-Pacific
While the US-China trade relationship continues to be the main focal point, broader trade issues across the Asia-Pacific region are raising concerns as well.
China’s own economic slowdown is reducing demand for Western goods, while its focus on domestic self-sufficiency may limit foreign business opportunities. Despite favorable demographics and a huge potential market, India remains a challenging place to do business and looks less like the natural successor China it has appeared as that market matures.
This is without even touching on the broader geopolitical issues that continue to rise around issues such as China’s position with places like Taiwan and Tibet.
Companies with supply chains or customer bases in Asia must closely monitor these developments. Understanding how trade flows shift between major economies will be key to maintaining competitive positioning.
How these global risks impact individual businesses
It can be easy to dismiss some of these issues with a hand wave. Are political issues in Asia really going to impact your company? The truth is that macroeconomic shifts don’t just stay at the government policy level, they create ripple effects that impact businesses of all sizes, all across the globe.
Here’s how some of these global trade disruptions could directly affect treasury and finance operations:
Higher costs and tighter margins
Tariffs and supply chain disruptions drive up costs, which can squeeze profit margins, especially in industries that rely heavily on imported materials. And even if you source all of your materials domestically, it’s unlikely that the entire supply chain for those materials doesn’t involve some level of international trade.
For example, any US-based electronics manufacturer that sources semiconductors from China could see major cost increases in the event of rising tariffs. Without a strategy in place, these higher costs could force price increases, which in turn could reduce demand and put pressure on margins.
Liquidity constraints and cash flow volatility
Unpredictable trade policies can lead to sudden cost spikes or revenue dips. This can be as much to do with potential changes as it is actual changes. Companies with concerns over the future may begin to delay payment of outstanding invoices to protect their own liquidity, with flow on impacts to other businesses down the line.
For example, a European automotive supplier facing delayed shipments from Asia due to regulatory changes may have to tap into credit lines to cover short-term cash flow gaps, potentially increasing interest expenses at a time when borrowing costs are already high.
Foreign exchange risk exposure
Foreign exchange is already a volatile business, but all of these global geopolitical issues could lead to even higher currency volatility, creating financial risks for companies with global operations.
For example, a US company exporting goods to Europe may see fluctuating revenues based on the strength of the euro against the dollar. If the euro weakens due to economic instability in Germany, their international revenues could take a hit.
Disrupted supply chains and inventory challenges
Many companies still operate just-in-time inventory models, which work well in stable conditions but create major issues when trade routes are disrupted. It’s a finely balanced model, and even small delays can cause serious problems.
For example, a retail company that sources apparel from Vietnam may find that sudden tariff changes make imports unprofitable, forcing them to quickly shift to new suppliers. This is likely to take both time and money, with the potential for unhappy customers right in the middle of it all.
The finance leader’s action plan
Trade disruptions aren’t just a possibility, they’re all but a certainty and getting more disruptive in real time. For CFOs and treasurers, this means moving beyond reactive strategies and implementing proactive planning tools that enable smarter financial decision-making.
At the core of this approach is scenario planning, the ability to test different economic and trade conditions in advance, understand their potential impact, and develop financial strategies to mitigate risks. Here’s how finance leaders can take a structured approach to dealing with global trade uncertainty.
1. Assess supply chain risks
A single weak link in the supply chain can create a domino effect, disrupting everything from inventory levels to production schedules and cash flow. Finance leaders need to work closely with procurement and operations teams to assess supplier concentration risks and identify alternative sourcing options.
- If new tariffs are introduced, will suppliers pass those costs directly to you?
- How diversified is your supplier network? Can you shift production or sourcing to different regions to avoid cost spikes?
- Are you locked into long-term contracts that could become unsustainable under new trade policies?
By analyzing these risks early, CFOs and treasurers can model alternative supply chain structures (and the capital costs of making the change) and ensure they have financial buffers in place to absorb potential disruptions.
2. Model the impact of trade policy changes
A single tariff increase or trade restriction can upend a company’s financials. Rather than waiting to react, CFOs should use cash flow forecasting and scenario modeling to prepare for different policy outcomes.
Even if there are no specific legislative changes on the horizon for you to consider, you can instead understand how broad changes to your key financial metrics would impact the bottom line. For example, what if your COGS increased by 25%? What if demand fell 10%? How would an average 7% swing against you in foreign exchange affect profits, and what would be the cost to hedge out this risk?
By running different models, finance teams can identify break-even points and determine when alternative sourcing, price adjustments, or financial hedging strategies might be necessary.
3. Strengthen liquidity reserves
At the very base level, the best protection you can have against uncertainty is liquidity. But of course, excess liquidity limits the return on capital and the funds available for growth and expansion, so finding the right balance is crucial.
To help find this balance point, finance leaders should maintain real-time cash visibility, assess available credit lines and ensure access to short-term funding if needed, and ensure they have robust cash forecasting practices in place.
Don’t wait until trade disruptions hit to act
The next few years will likely bring major shifts in global trade. Whether it’s tariffs, economic downturns, or supply chain realignments, businesses that prepare now will be far better positioned than those that wait to react.
For CFOs and treasurers, this isn’t just about keeping an eye on the headlines. It’s about using the right financial tools to model the future, assess risks, and build a strategy that ensures long-term stability.
If your team isn’t already using scenario planning, forecasting tools and doesn’t have access to automated, real-time cash positioning, now is the time to start. To see how implementing these features into your finance and treasury departments can help you grow and thrive amidst global uncertainty, book a demo of Trovata today.
