Rethinking global trade and supply chain finance

Global trade is in the midst of a transformation, driven by political and economic shifts, evolving regulations, and rapid technological advancements. Sanctions and tariffs are creating barriers, while free trade agreements offer new opportunities. Supply chains are being realigned, with businesses diversifying markets and currencies to mitigate risks. At the same time, digital technologies such as blockchain and artificial intelligence (AI) are reshaping how trade is conducted, making it faster, more secure and efficient. Despite the complexity, these disruptions also open doors for innovation and growth, particularly for countries in ASEAN and South Asia.

Changing global trade

Global trade is experiencing a seismic shift, driven by geopolitical tensions, tariffs, economic challenges and rapid technological advancements. Traditional trade routes and supply chains are being disrupted, forcing businesses and financial institutions to rethink their strategies for trade settlement, financing, and investment.

How sanctions and tariffs are affecting trade

While trade sanctions are not new, their increasing use as political leverage has become more unpredictable. This creates artificial barriers to trade and raises compliance costs for businesses.

Deborah Elms, Head of Trade Policy at the Hinrich Foundation, explained, “Governments favour economic tools because they are easier to use than military interventions. However, the effectiveness of economic statecraft is not as strong as its advocates suggest. Unfortunately, the use of these tools is likely to increase, complicating trade transaction management.”

In addition to imposing sanctions, some countries are increasingly trying to bring manufacturing back home often driven by a political agenda which appeals to a domestic voter base.

Matthew Moodey, Head of Trade Finance, Lending and Structured Products for Asia Pacific at Deutsche Bank, added, “Political efforts to bring jobs back onshore, such as the US Inflation Reduction Act, will complicate trade and reduce trade volumes. In a fragmented world, few will benefit, and companies reliant on trade will face higher prices and inflation as imported goods become less available.”

Deborah Elms, Head of Trade Policy at
Hinrich Foundation

Matthew Moodey, Head of Trade Finance, Lending and Structured Products for Asia Pacific at Deutsche Bank

A positive development in global trade is the introduction of new free trade agreements (FTAs), such as the Regional Comprehensive Economic Partnership (RCEP), which presents significant opportunities for businesses. By reducing tariffs and streamlining regulations, FTAs lower costs, expand access to foreign markets, and encourage small and medium sized enterprise (SME) participation in global trade. However, the uptake on new agreements has been slow, with businesses either unfamiliar with them or already utilising existing agreements like ASEAN-plus-one.

New supply chain strategies for resilience

The COVID-19 pandemic disrupted supply chains and led to the rise of ‘near-shoring’ to enhance resilience. As the world divides into trading blocs, companies are adopting ‘friend-shoring,’ realigning supply chains to countries with similar ideologies to reduce exposure to sanctions or tariffs.

Michael Spiegel, Global Head of Transaction Banking at Standard Chartered, explained, “Supply chain shifts have been happening for years, driven by factors like labour arbitrage. Geopolitical tensions and COVID-related logistical challenges have accelerated this trend. While some speak of deglobalisation, we are seeing ‘reglobalisation,’ and the world benefits from staying connected.”

This shift presents opportunities for ASEAN and South Asian countries. Although the “China + 1” strategy has diverted some investments, China remains the world’s largest manufacturer, with deep supply chain linkages. A full decoupling of supply chains is unlikely, except in high-tech or politically sensitive sectors.

Another consequence of increased tariff use is that companies are exploring alternatives to mitigate risks. Some are testing invoicing or borrowing in different currencies, shifting part of their flows into new currencies to prepare for potential future changes.

Elms added, “When you weaponise business transaction systems, it incentivises parties at risk of sanctions to seek alternatives. It doesn’t mean creating an alternative to SWIFT or a new currency. It could be smaller decisions, like the choice of currency for invoicing, the financial entities involved, or the platforms used for operations.”

The change in the choice of currency for invoicing is most visible in the increasing use of the renminbi (RMB) for invoicing in China cross-border trade flows. This has led to the development of a strong RMB offshore market in multiple locations, especially in Hong Kong.

Shivkumar Seerapu, Head of Transaction Services for Wholesale Banking at ING for Asia Pacific, stated, “At ING, we see diversification of invoicing currencies as a key outcome of shifting trade corridors, largely driven by tariffs and geopolitical uncertainty. While the US dollar has traditionally dominated global trade, alternative currencies like the euro, renminbi and yen are gaining ground. This trend presents both challenges and opportunities for businesses as they seek to manage trade risks.”

Michael Spiegel, Global Head of Transaction Banking at
Standard Chartered

Shivkumar Seerapu, Head of Transaction Services for Wholesale Banking at ING for Asia Pacific

In the last couple of years, there has also been a noticeable shift towards borrowing in local currencies instead of borrowing in US dollars. It is likely though that this is driven by interest arbitrage rather than from a risk diversification perspective.

Moodey said, “We have seen a reduction in financing raised in US dollars, but it’s hard to say if this is a structural shift. It’s more likely linked to higher US dollar interest rates compared to local currency rates and could reverse once US dollar rates decrease. I don’t see the US dollar losing its reserve currency status, but there may be more borrowing in local currencies.”

Digitalisation of trade is progressing

The United Kingdom (UK)’s Electronic Trade Documents Act, passed in 2023, is a key enabler of trade digitalisation, aligning with the Model Law on Electronic Transferable Records (MLETR). This allows certain trade documents to be accepted as electronic transfer records, providing faster processing, reduced errors, and lower fraud risk. However, digitising trade remains complex, as international trade involves multiple parties and non-standardised physical documents.

Spiegel highlighted: “Digitalisation of trade is moving in the right direction, especially in countries like Singapore. I am a strong advocate of standardisation alongside digitalisation. However, this is a complex issue, as standards need to be agreed upon first and then also incorporated into local regulations. For instance, only 10 countries have so far adopted the MLETR into local law.”

It’s a challenging task of first getting everyone to agree on the standards and then to have it incorporated into local laws. Cross-border trade flows bring the added complexity that these standards should be accepted and implemented in the jurisdictions of all the counterparties involved.

Kingshuk Ghoshal, Co-founder & CEO of TASConnect, stated, “Seamless adoption is key. While MLETR has grown, particularly in Europe, it is still in its early stages in Asia. Singapore adopted it in 2021, but cross-border trade requires other countries to be at similar levels of adoption.”

Kingshuk Ghoshal, Co-founder & CEO of TASConnect

While bigger corporates in some of the developed markets like the UK and Singapore are making progress with trade digitalisation, it’s a different ball game for the smaller companies especially in the lesser developed markets.

Moodey echoed, “Adoption of electronic trade is still very low because multiple parties need to support electronic flows. The biggest trade gaps are in small to medium enterprises and frontier markets, which have limited access to the necessary infrastructure.”

Another important driver of trade digitalisation is the need for every participant in the ecosystem to be using the same technological tools. This is a challenge as no one platform fully meets the needs of the different players in the ecosystem.

Elms added, “We have a chicken-and-egg problem where everyone agrees it would be better to digitise, but no one is certain how to get there. Companies don’t want to invest in solutions unless they are sure their partners will too. I suspect there will be a tipping point when one-size-fits-all platforms emerge, covering everything from financing to shipping.”

Lessons from trade platforms

Several trade platforms have attempted to digitise trade, but some notable failures, such as we.trade, TradeLens, and Marco Polo Network, have raised questions about the sustainability of their business models. These platforms struggled to gain sufficient adoption, limiting their impact.

Seerapu explained, “The initial promise of these platforms was to revolutionise trade finance by leveraging blockchain and other technologies. However, the closed ecosystem of many platforms limited their benefits to participants, hindering broader adoption. The key to success lies in building interoperability between platforms and traditional banking systems.”

While these platforms started with noble intentions, they struggled getting adoption as the various stakeholders had their own interests and it was a challenge to get them to align.

Ghoshal stated, “These platforms aimed high but missed a key participant—the regulator or industry body that could set standards. Without validation from regulators, it’s difficult to resolve conflicting incentives. Our approach at TASConnect is to create value for enterprise ecosystems by allowing enterprises to design their own incentives.”

The need for standards and interoperability remains critical for the success of digital trade platforms. Efforts by industry bodies, like the International Chamber of Commerce (ICC), to standardise trade documentation are encouraging.

New technologies are transforming trade

The rise of technologies like generative AI (GenAI), blockchain, and machine learning is helping transform trade and supply chain finance by making processes more efficient, secure, and accessible.

Seerapu highlighted, “GenAI is revolutionising trade finance by automating the creation and verification of trade documents. Blockchain enhances transparency by maintaining a decentralised ledger, reducing fraud risk, and supporting smart contracts. Machine learning is improving risk assessment by analysing trade data in real time.”

Solution providers have already started to implement some of the new technologies, especially AI, while they closely evaluate the use cases for the others.

Ghoshal commented, “GenAI is here to stay. We have developed AI-as-a-Service for sentiment monitoring particularly in procurement and risk management. Blockchain adoption is still limited due to the lack of a standardised algorithm, but I expect blockchain-based tools like central bank digital currencies (CBDCs) and stablecoins to reduce costs and improve trade transparency.”

Banks have also been actively engaging in proofs of concepts of the new technologies, testing out multiple use cases.

Spiegel shared, “New technologies enable new ways of working and settling transactions. Blockchain has been around for some time, but more experimentation is happening now. We completed a proof of concept on trade asset tokenisation under MAS’s Project Guardian. We are mindful of ethical and security issues, and for now, GenAI is used only internally.”

Collaboration and digitalisation will shape the future of trade

Global trade is clearly experiencing transformational changes so what can we expect in the future? There is likely to be more fragmentation in the near term and this will reduce trade volumes. Technology though will be the game-changer, and it will positively reshape the trade landscape.

Seerapu stated, “Advancements in AI, blockchain, and decentralised finance will reshape the trade finance landscape. Groundbreaking solutions will democratise access to global trade, and digital solutions will attract new sources of capital. Regulation will play a key role in shaping the digital trade ecosystem.”

Another positive development is the progress on interoperability solutions, supported by regulators in many cases. This will drive greater adoption of blockchain based solutions and will facilitate new business models.

Ghoshal predicted, “The US dollar’s dominance in trade settlements may face pressure. CBDCs will become the norm, and tokenised payments will grow trade flows. I expect more fintechs to succeed in trade finance, accelerating digitalisation across markets.”

The trade ecosystem will continue to evolve with greater cooperation among the players and with fintech expected to play a much bigger role.

Spiegel added, “I see further convergence between trade payments and foreign exchange into working capital. The ecosystem will evolve from bilateral models to one involving multiple banks, clients, fintechs, and regulators. Digitalisation will accelerate, and fintechs will play a key role.”

Complexity in trade will remain given the risk of further tariffs, geopolitical uncertainties, increasing sustainability regulatory requirements and ever evolving supply chains. There will be continued growth of the supporting legal and regulatory framework facilitating electronic trade. This coupled with increased efforts by industry bodies to harmonise standards, should give a fillip to the digitalisation of trade processes. The growing usage of new technologies like Gen AI, blockchain and machine learning (ML) will also spur continued innovative solutions from both banks and fintechs.

In a fragmented trade world, disruptive innovations will also create new opportunities, especially as companies explore non-traditional trade paths. In the course to achieve greater trade digitalisation, success will come to those who are willing to experiment and collaborate to seize the opportunities provided by an increasingly enabling trade ecosystem.