Trump’s 2024 election victory has reignited global trade tensions, with a new wave of aggressive tariffs triggering widespread disruption and uncertainty. In this article, Andre van Niekerk, Head of Consulting and Insights, and Jonathan Steenberg, Economist at Coface UK, examine the impact of these measures, the risks they pose to international businesses, and how companies can adapt to the evolving trade landscape.
Shock and uncertainty
In his 2 April (‘Liberation Day’) announcement, President Trump said that the level of tariffs imposed on trade partners would be calculated by dividing the US’s trade deficit with that country by its total exports to the US, then halving the result. Even countries with a trade surplus or low calculated tariffs were hit with a blanket 10% tariff.
In addition, tariffs were imposed on specific imports to ‘protect’ US manufacturing, starting with steel and aluminium at 50% and automotive (25%). The Administration has launched investigations into imports in other sectors on national security grounds which could result in tariffs, including aerospace, copper, pharmaceuticals, semiconductors and timber.
The 'Trump Tariffs' marked the biggest change in US trade policy since the Smoot-Hawley Act of 1930. As well as departing from multilateral trade norms, including WTO rules, they stoked geopolitical tensions with other countries taking retaliatory action while counterthreats continued from the White House.
Legal challenges within the US have added to the uncertainty. While these could yet derail President Trump’s plans, the tariffs remain in effect pending a final ruling on whether the President exceeded his authority and it’s likely the cases will end up before the Supreme Court. Even if it rules against the President, the Administration will look for an alternative route, such as Congress, to push through its measures.
The global impact
The US was among the first to be affected with the sharp downturn in the economy in Q1 (contracting by 0.3% compared with growth of 2.4% in the previous quarter) higher interest rates and a weakening dollar. Several commentators, including the IMF, have predicted a 40% chance of recession this year.
Of the major economies, President Trump initially took a particularly strong line with China which responded in kind before the two countries reached a framework trade deal. However, South Korea, Japan and India are also likely to be hit hard unless they strike a deal. Talks are ongoing with the EU with the President threatening tariffs of 50% if these are unsuccessful which would be particularly damaging for Germany and Italy. Meanwhile, the UK and US have agreed a trade deal in principle which should keep tariffs lower, but this has yet to be effectuated.
For emerging economies, the impact will be most severe for those specialising in low-cost manufacturing, including Vietnam, Cambodia, Taiwan, Malaysia, and Thailand which are highly dependent on US trade. Countries in Africa (e.g. Lesotho, Botswana, South Africa) and Central America (e.g. Nicaragua, Honduras and Costa Rica) are also vulnerable.
What are the risks and opportunities for UK businesses
If the UK can finalise a trade deal with the US, it will mean British exporters should be spared the highest tariffs in areas like automotive and aerospace. US buyers are also likely to replace suppliers in heavily tariffed countries with new ones from countries with lower tariffs which should benefit the UK and others on the 10% base tariff.
However, businesses still face threats from the new US regime, including:
Economic – The overall outlook is gloomier with the IMF, OECD and World Bank downgrading their global growth forecasts in recent weeks and news that the UK economy contracted in April. This is when businesses are already trying to recover from a challenging few years of inflation, high interest rates and low demand which squeezed corporate margins and led to increased insolvency rates.
Supply chain – The imposition of trade barriers disrupts existing supply chains, potentially causing shipping delays due to red tape and increasing costs. Sudden changes to the tariff can pose real financial challenges for exporters and buyers with goods on the water if the tariff has not been incorporated into the price.
Cheap competition - Tariffs are likely to reconfigure trade flows as exporters from affected countries seek new markets, increasing competition for UK manufacturers and forcing down prices. In addition to the steel and automotive industries, this could be a risk for sectors such as textiles, electronics, chemicals and consumer goods such as toys and furniture.
Assessing the risk – where to go for information
Following such a major change to the trade system, it’s essential to assess the impact on your trade partners so you can make informed decisions about your own supply chain and customer base. These three resources will help you evaluate a company's exposure to tariff risk or identify new market opportunities:
1. Financial Statements
Revenue Notes are where companies are required to disclose their sources of income. This section often provides insights into the geographical distribution of a company's revenue, indicating how much of their income is derived from exports to the US. Even if the statement reports that a substantial portion of its revenue comes from North America, this could imply a high exposure to US tariffs.
Operating Segments are where companies often break down their performance by region. This can help you understand their exposure to different markets and the potential impact of tariffs on specific segments of the business.
The Management discussion and analysis (MD&A) section should provide qualitative information about the risks and uncertainties of the company’s international trade, including potential impacts from tariff changes. This narrative can offer valuable context and highlight areas of concern or the company’s strategic responses to mitigate tariff-related risks.
2. Shipping Data
Many countries make their shipping data available, which includes detailed information such as counterparties, departure and destination countries, types of goods, values of goods, and more. This can provide insights into trade flows and help identify which exporters and industries are most and least exposed to the new US tariffs.
There are various vendors that provide shipping data, and while some of these services can be expensive, they offer comprehensive datasets that can be invaluable for detailed analysis. ImportYeti is a free tool that enables users to search US Export and Import shipping data and assess these supply chains. This can be particularly useful for identifying companies that might be looking for new suppliers outside of heavily tariffed regions.
3. Coface Business Information
The intuitive Urba360 platform gives you instant online access to our exclusive data on more than 220 million companies across the world, including six key indicators: a Coface score which shows the probability of default, credit opinion, financial ratios, late payment index, country and sector risk. But what really sets Urba360 apart is that it utilises the expertise of our global network of risk analysts and trade credit insurance underwriters. They continuously examine a range of sources (e.g. shipping data, financial statements, policyholders’ overdue payment notifications) to make and update their assessments of company risk.
Given the speed of developments since the President took office, you can’t afford to rely on a company’s last set of accounts. Urba360 gives you the latest insights about companies in your portfolio and you get customised alerts if there are any changes to help you proactively manage your risk.
To discover how Coface UK’s Business Information team can support your business in an age of tariffs, contact us today or book an Urba360 demo to see our powerful risk analysis tool in action.
