Global Trade Under Pressure: Decoding Key Trends

Trade tariffs and geopolitical instability are significantly impacting global trade, creating pressure on corporates’ supply chains. Michela Cicenia and Guillaume Genet, Co-Heads of Global Trade at Natixis Corporate & Investment Banking, offer their expertise in a new interview, discussing these key trends and strategies for successful navigations.

Complexity is the key word. Our clients and the banks are navigating an increasingly complex trade landscape. The implementation of tariffs by Trump administration, uncertainties on their final levels, on potential reactions from other countries and the way those other countries will agree or not to work together are creating uncertainty in decisions and influencing supply chains routes.

This will impact the pace of the global economy, the level of investments, and the global trust. It creates as well contradictory patterns with a combination of wait and see attitude and volatility across many different asset classes.

In addition, the geopolitical context with the situation in Ukraine and in the Middle East are creating additional challenges to the business climate of our clients.

We anticipate a confirmation - or even an acceleration - of new trade and investments corridors. Within Asia, South Korea and Japan could capture more export flows to the US, while the Middle East could capitalize on the current situation and emerge as a trading and manufacturing hub.

Given the current uncertainties, we are all awaiting the final outcome of tariff negotiations. The final agreement may diverge from the current landscape. Going forward, the different actors will adapt their positions in the new international trade environment based on their specific circumstances and roles.

For instance, corporates with an existing US domestic presence may well expand their industrial activities and try to minimize reliance on imports for their US operations. Traders should address those complexities and implement solutions to restore supply chain disruptions on the commodity space. We also expect to see enhanced ECA missions reinforced and increased levels of ECA financings. Finaly, defense industries are likely to receive strong backing from their respective governments.

Overall, in light of this constantly evolving landscape, it is clear that large corporates will be better equipped to navigate these new complexities than small and medium-sized companies.

Given the current context, our clients need tailor made solutions, which is our hallmark. We decided to adjust our organization by industries early this year to fine-tune our solutions to their specific environments.

It became clear to us that reinforcing our team’s sectorial expertise allows us to better anticipate our clients’ needs. By advising them proactively, we create opportunities and continuously seek tailored solutions.

We have also combined some sectors, to focus on the ecosystems and the interconnections between traditional industries. This allows us to capture emerging needs and address the evolving supply chains and geographies. Critical Metals and Mobility is a prime example of a value chain in evolution.

Statements from the new US administration suggest that the energy transition is no longer a priority. Actually, we observe a trend towards coupling energy transition with energy addition: the US is responding to surging energy demand by pursuing both energy transition and the addition of new energy capacity. Indeed, forecasts predict a substantial surge in power consumption, with estimates suggesting an almost 16% increase over the next five years.

This surge is primarily driven by the proliferation of energy-intensive data centers, powering the rapid growth of artificial intelligence, and the accelerating electrification of both residential and transportation sectors. Strong liquidity remains available to support top-tier clean energy platforms, as demonstrated by the $2.5 billion recently, and successfully, raised by Invenergy.

In Europe, the situation is different because the transition is tied to energy security. Tariffs are indeed creating an additional complexity to the transition given existing China positioning on EV value chains and batteries. But we still see a lot of support in Europe for adding up new renewable capacities, adjusting current car fleets to more and more hybrid and electric cars, etc. A positive development is Germany’s decision to invest significantly, partly in defense and infrastructure. This is a good signal for strengthening intra-European flows.

At Natixis CIB level, we are fully engaged to accompany transition of our clients by bringing dedicated green products such as the Green Deposit Offer and / or the decommissioning guarantee.

Defense is clearly becoming a priority on the European agenda. While we primarily support major clients with their export activities, the emphasis is now shifting towards assisting them within Europe, and on a huge magnitude as compared to the past. Consequently, our clients’ needs are likely to evolve. We are increasingly called upon to help them expand their production capacities. 

The defense industry is as well home to many small and medium-sized suppliers with unique - and essential - expertise. If a major European defense company needs to accelerate its level of production - and potentially upgrade its technology - it needs to ensure that all its suppliers have the capacity to keep pace. 

Questions remain about the financing of the entire defense ecosystem and its organization, particularly regarding the role of government entities. The State's financing aspect has yet to be fully defined. Could we see ECAs - including Bpifrance - amend their mandate to assist in this industrial capacity increase? How could each European country team up through their procurement processes? The role of Europe also needs clarification, as purchases on behalf of Europe are being considered, rather than solely on behalf of individual states.

This brings up the question of reindustrialization, particularly regarding how we might adapt technologies and skills from other industries to the defense sector. And also, how we allow the big players to secure the production capacity through financing.

Banks have a key role in financing these critical suppliers, who not only require huge capital expenditure, but also an efficient management of purchase orders and invoicing flows to improve cash flow generation and cash availability across the supply chain. This presents a serious challenge for European banks and we, at Natixis CIB, are actively addressing it.

A few years ago, we were convinced that a large, multi-bank ecosystem would emerge, driving the development of various multi-bank solutions. However, only a few of these initiatives have actually succeeded. Indeed, integrating different platforms introduces complex data management challenges across the entire transaction lifecycle.

Today, we are convinced that the future lies in the coexistence of well-established platforms, like KomGo, alongside bank portals enriched with added value solutions and enhanced with Artificial Intelligence. We have recently implemented Trade Tracker, which provides our clients with real-time update on the status of their documentary transactions managed by us. We also actively develop various AI use cases.

Data traceability is becoming increasingly critical, and we are developing tools, which we plan to test with our clients. We have also been actively collaborating for many years with the French Ministry of Finance and a diverse trade ecosystem - including banks, shipping companies, and fintechs - to support the implementation of the Model Law on Electronic Transferable Records (MLETR), which aims to digitize trade finance through the recognition of electronic bill of lading.

Agility is clearly paramount. We encourage our clients to build agility and optionality into the core of their business models, this is our own philosophy, and it is our role to help them. 

Each situation may require different trade finance, working capital and treasury solutions. We help our clients develop these options so they remain competitive in today’s uncertain and volatile world. In this respect, we believe the lessons learned from the COVID-19 pandemic can help them enhance their adaptability capacity.