Trade finance has played an important role in supporting economic growth and global prosperity for over a century. However, the resurgence of protectionist trade policies, particularly among some of the world’s largest economies, has heightened investors’ perceptions of geopolitical risk and raised concerns about the potential impacts on global supply chains.
Despite these challenges, trade finance is proving resilient. Having historically been an effective approach for organizations to facilitate growth and effectively manage emerging risks, it continues to advance those goals today.
Trade credit insurance is an important tool in the trade finance toolkit. In its simplest form, it protects businesses against customer defaults or non-payment for short-term transactions, typically ranging from 90 to 180 days. By purchasing trade credit insurance, businesses can mitigate the risk of bad debt, safeguarding their trade receivables and maintaining stable cash flow.
How trade finance and protectionist policies developments relate
Following World War II, supportive trade policies reduced global tariffs from 15% to 5%. They also boosted international trade’s contribution to global GDP from 20% to nearly 50% before the 2008 financial crisis. Globally, the political fallout from the 2008 financial crisis led to stagnation in trade’s GDP share and slowed global growth, slowed global growth, and trade finance’s compound annual growth rate (CAGR) remained subdued between 2010 and 2015 at just 1.4%.
While trade finance growth improved from 2018 to 2023, it faced challenges from a fourfold increase in government interventions, geopolitical disruptions, and high interest rates. Government support in 2020 and 2021 helped lower business insolvencies in developed economies, which stabilized credit insurance pricing. However, with this support ending and tight monetary policies, insolvency rates have increased significantly.
The trade finance and trade policy outlook for 2025
Looking ahead, credit insurers anticipate that insolvency growth rates will stabilize at high levels amid a normalizing, yet uncertain, macroeconomic environment. However, some forecasters, including Mercer’s Global Economics and Dynamic Asset Allocation team, highlight significant tail risks to this outlook.
Key concerns include the effects of renewed protectionist policies and a continuation of tight monetary measures. Often, business uncertainty surrounding trade policy can deter investment and trade even before any tariffs are implemented, affecting the behaviors of buyers and suppliers across a company’s supply chain. With the Global Trade Policy Uncertainty Index at its highest level since records began in 1960, this widespread uncertainty could adversely impact many less-diversified businesses.
Potential impacts of proposed tariffs on trade finance
Concerns about the impact of tariffs on economic growth, insolvencies, and trade credit insurance were prevalent when US tariffs were introduced in the late 2010s. However, most businesses adapted by rerouting supply chains and finding alternative suppliers to navigate trade barriers, and more recently using connector countries, as discussed in Marsh’s Political Risk Report 2025.
In 2025, the potential for disruption is greater than what was seen previously. Between 2015 and 2020, US tariffs affected around US$400 billion in goods, primarily imports from China. However, current proposed US tariff policies could impact nearly ten times that amount, exceeding US$3 trillion annually. Longer term, tariffs could reduce global trade values by more than 7% by 2030.
Protecting your business with trade credit insurance
While much remains uncertain about the economic environment, the risk of insolvencies surpassing forecasts should be seriously considered, especially for key suppliers and distributors in more exposed markets.
Importantly, and if history is any guide, trade credit insurance has proven effective in managing risks associated with trading partners. For example, businesses with comprehensive non-payment insurance are generally covered for losses due to supplier or counterparty insolvencies, regardless of the cause. While it may be that tariffs ultimately contribute to counterparty defaults and insolvencies, policies are nonetheless expected to respond to non-payments.
As new opportunities and supply chain routes emerge, businesses may increasingly rely on trade finance for greater safety and security. Businesses should review their existing trade credit policies to assess their coverage for defaults triggered by government actions, including any relevant exclusions and coverage triggers. Those without such policies and seeking to protect their short-term transactions from trade policy disruptions are invited to contact their Marsh representative for guidance.
