Coface downgraded four countries and 23 industries in its June Risk Review, which paints a picture of a world reeling from tariffs and unsure of its economic future. Uncertainty is one of the main takeaways from the report – over the impact of tariffs, the magnitude of forecasted economic slowdowns in developed economies, and the future of conflicts for global stability.

The reports, published by the global trade credit insurer, rates the risk of countries and sectors around the world based on economic, financial, and geopolitical indicators. In June’s report, three countries in South-East Asia – Malaysia, Singapore, and Thailand – saw their risk rating fall by one rank, and 23 national industries, over a third of them metals industry, had their risk level raised to ‘high’ or ‘very high’ in what Coface Chief Economist Jean-Christophe Caffet termed “the great leap backwards”. 

A difficult time for predictions

The overwhelming theme of the report – pessimistic though it was – was the difficulty of making definitive predictions so close to major events. Confident-sounding analyses about the impact of tariffs or other global events are more often than not disporved in the long term or as the situation evolves. The current situation of volatility and weakening demand leads to a “Schrödinger’s cat situation” where “we can’t really figure out if economic momentum is dead or alive,” said Jonathan Steenberg, Economist for the UK and Ireland at Coface. 

Although markets respond almost immediately to announcements – like stocks jumping at Trump’s announcement of a ninety-day pause from tariffs, or oil futures reacting to the US’s attacks on Iran – this is rarely an accurate predictor of event’s actual, long-term economic impact. 

Even when events do have long-term consequences, these can take a long time to manifest themselves – leading to misdiagnoses and premature judgments. For example, the rising number of UK and EU businesses entering insolvency is at least partially still due to the pandemic lockdowns – which both shifted costs to the future and eroded the reserves many businesses relied on to get through hard times.

Business insolvencies – 3mma, %of the same period in 2019

Tariff risk: Vague but looming

Although it’s difficult to make specific predictions about the impact of tariffs (especially as many are yet to actually go into effect), they are contributing to global uncertainty, especially around the hardest-hit countries. Malaysia and Thailand – which faced the worst of the Liberation Day tariffs (at 24% and 36%, respectively) – are heavily reliant on trade with the US, which receives much of their exports. The threat of tariffs, along with unrelated domestic economic slowdowns, could place economic stability in jeopardy and make businesses in those countries riskier to trade with, according to the report.

Another immediate effect of tariffs has manifested itself on shipping costs, which skyrocketed with the first announcement and are yet to go back to normal. When Liberation day tariffs were announced, companies tried to ship as much as they could to the US before the tariffs went into effect. Contradictory announcements – that some or all tariffs would be removed, paused, or doubled – contributed to the mayhem, and further encouraged exporters to take advantage of tariff breaks they learned could be short-lived. 

This led shipping costs to rise massively with demand. Even trade routes that were entirely unaffected by tariffs faced much higher costs as shipping companies diverted their resources towards more lucrative US routes. Uncertainty around tariffs, then, is affecting more than just US-linked countries and sectors: its by-products are deeply changing all aspects of global trade, and will do so long after tariffs leave the news headlines.

Coface’s research found that due to weakening demand, firms aren’t shifting costs on to consumers as much as they could be. This means firms will be especially sensitive to new cost shocks, leading to a riskier business environment. The report estimates up to 15% of UK firms are potentially distressed, while loan delinquency rates in the US have been rising consistently this year; similar situations in countries that are more likely to experience economic slowdowns in the next months could increase uncertainty in world trade and place trade finance institutions in a more vulnerable position. 

So far, however, tariffs have affected few aspects of the global economy besides short-lived spikes in markets and shipping costs. It may be months before the full impact of tariffs becomes known (partly because the full extent of the tariffs themselves is still unclear, even as the end of the 90-day pause on most tariffs draws nearer). “The data releases keep coming, but it’s difficult to see the tariff show up in the data in a big way,” said Marcos Carias, Economist for North America at Coface.

Commodities and metals take a hit

8 of the 23 industries whose risk rating was upgraded were national metals industries, a commodity that has increasingly been making headlines due to President Trump’s insistence that any Ukraine deal include a provision for US access to rare earth metals. The report finds that the metals industry, once an honor-based sector, has been experiencing an erosion in trust, leading to increased defaults. 

Phoenix companies – the practice of a firm going into administration and then being repurchased by its original directors – are becoming more common, leading to a riskier trading environment where loans and contracts are less likely to be honored. Fraud cases involving metals trading, such as the one currently being litigated between commodities giant Trafigura and TMT Metals, have also been increasingly making headlines, reducing trust in the sector. 

“When businesses who are reliant on each other for supply and sales stop trusting each other, that becomes a much bigger problem – [especially because those] businesses are making decisions that impact the whole supply chain,” said Sam Ashdown, Head of Underwriting for Light Industries at Coface.

Once again, tariffs, which are all-but-certain to afflict many national car industries as well as steel and aluminium exports, are contributing to rising risks, with 5 national car industries seeing their risk level downgraded by the report – the UK automotive industry’s risk rating was upgraded from High to Very High. 

Extreme geopolitical events, on the other hand – such as rising tensions in the Middle East leading to the closure of the Strait of Hormuz and skyrocketing oil prices – are not significantly impacting risk assessments, as they are highly unlikely as it stands. Even a moderate rise in international tensions, however, could lead global growth to fall below 2%; for example, if the Israel-Iran conflict spread regionally or the trade war were to escalate.

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The report paints a sobering picture of today’s trade environment – one defined by uncertainty, eroding trust, and increasing risk in almost all regions and sectors. However, there is reason to maintain hope. 

UK businesses have stayed incredibly resilient despite Brexit and pandemic-related shocks, and are likely to see this crisis through as well. Major economies are all still expected to grow in 2025 and 2026, and insolvencies in Europe and Canada are starting to stabilise after two years of turmoil; whether this will continue or be disrupted by a continuing trade war and tensions in the Middle East is yet to be seen.