How Trump’s changing tariffs are upending cross-border payments | PaymentsSource

With the future of supply chains up in the air, BNY’s corporate clients are paying extra attention to their cash positions.

“In the times of uncertainty, we typically see clients much more keen on understanding their cash flow, getting more predictive analytics on behavior, understanding cash flow trends and financing receivables,” Carl Slabicki, executive platform owner of Treasury Services at BNY, told American Banker. 

President Trump’s quickly evolving tariff policy is falling on the shoulders of companies that manage international money flows, which have to shift strategies without knowing for sure what the rules are going to be. As a result, traditional cross-border payment flows are at risk of being upended.

BNY has also seen many of its clients prioritizing planning for an unknown future with a focus on the speed and availability of service, Slabicki said. BNY works with 2,500 correspondent banks, supporting payments for both retail remittances and corporate businesses, including trade flows, importing, exporting and corporate payments. It processes $3 trillion daily in almost 130 currencies.

“Those types of [insights] become much more critical to have transparency and visibility into, and the ability to access those types of data points in real time puts them a little bit more at ease through these volatile cycles,” Slabicki said. “In the current economic environment, our goal is not to be in the prediction business, but to be in the preparedness business.”

Trump paused tariffs for 90 days for 75 affected countries Wednesday afternoon but increased the levy on imported Chinese goods, offering equity markets a brief respite that did not extend into Thursday. 

And while “reciprocal” tariffs were lowered to 10% for most of those countries, changes in the way goods coming into the U.S. are taxed are going to force enterprises and small businesses to rethink their strategy.

“There is … considerable uncertainty in commerce markets, especially cross border, and that extends beyond transactions between the U.S. and the tariff targets,” said Aaron Press, research director for IDC Insights. “The marketplace model is going to have to make significant shifts, as is the supply chain market, especially to the degree that these two are intertwined.”

With those shifts in global supply chains, cross border payments will follow. The U.S. economy is heavily reliant on imports from China. The U.S. imported $438.9 billion worth of Chinese goods in 2024, an increase of 2.8% compared with 2023, according to the Office of the United States Trade Representative. That’s second to only Mexican imports, which totaled $505.9 billion in 2024. 

More than two-thirds of small businesses in 2024 relied on goods from China and other countries for production or as merchandise to distribute domestically, according to FedEx’s Small Business Trade Index. Nine out of ten small-business leaders said that China, Japan and the United Kingdom were the most important countries to expand trade with. 

Tariffs have a wide-ranging impact on cross-border payments and foreign exchange rates. On the most basic level, tariffs cause Americans to be less likely to buy imported goods, which causes less demand among Americans for foreign currency, Ernie Tedeschi, director of economics at the Budget Lab at Yale, told American Banker. Lower demand for imported goods makes the dollar “stronger.” But when countries retaliate with their own tariffs on U.S. exports — such as China’s 84% tariff on U.S. goods — those gains are neutralized. 

“Where this leaves currency traders and cross-border payments and people in finance is a lot of uncertainty about what the right way to trade is,” Tedeschi said. 

Cross-border transactions, especially those involving multiple correspondent banks, are particularly exposed to volatility in trade policy and the ensuing fluctuations of foreign exchange rates.

“Long transactions are particularly vulnerable right now because of market movements and because of the actual policy being announced,” Tedeschi said. “A lot of what we’re seeing in markets now is really not a shock from the substance of the policy. … It is just the uncertainty of the policy.” 

Moreover, the dollar is pivotal in serving as a middle-hand currency for transactions between two currencies that otherwise might not have a liquid market. “The dollar is involved in the order of 70% or 80% of international financing. One of the places the dollar is just foundational for international finance these days is as an intermediary between two countries that might not have access to one another,” he said. 

A strong, stable dollar provides parties with “reasonable confidence” to make those transactions. A weakened, unstable dollar undermines that dichotomy. 

“Make no mistake, tariffs are a particularly economically damaging, inefficient form of taxation.  I’m sure markets don’t love them on the merits,” Tedeschi said. 

Uncertainty around trade policy has already shaken up the status quo of cross-border payments as many businesses try to get ahead of future volatility. 

International foreign exchange and payments firm Monex, which specializes in transactions between Mexico and the U.S., has seen many of its clients make payments to suppliers early and stock up on foreign currency it knows it will need, Juan Perez, director of trading, told American Banker.  

“They’re ultimately looking for stability in the midst of [volatility],” Perez said. “Especially those that need to balance sheet hedge or make payments ahead.”

And that’s been profitable for Monex, Perez said. “We’re great beneficiaries of the volatility that’s going on in the foreign exchange market.”  

There’s a silver lining, though, for banks and payments companies, Lindsay Fitzgerald, founding partner at Vesey Ventures, told American Banker. Trade financing is likely to become more important than it was in the past as the price of global trade becomes more expensive. Treasury management software will also be a bigger deal to small businesses as they work to manage cash flow amid potential shifts in major trade corridors. 

But the biggest opportunity may be in currency, or FX, hedging, Fitzgerald said. FX hedging is the process where businesses or individuals use financial instruments like forward contracts, options or swaps to mitigate potential losses from adverse fluctuations in exchange rates. 

“Uncertainty in global trade is the name of the game, at least for now,” Fitzgerald said. 

At the end of the day, it’s the small businesses that will be impacted the most by that continued uncertainty around U.S. levies of imported goods, Elaine Duff, senior vice president and head of money movement and retail solutions at FIS told American Banker. 

“A lot of small businesses are going to be really hindered by this and their ability to compete with larger businesses in the U.S.,” Duff said. 

“It’s a headwind for everybody. The more expensive it is to buy goods, fewer people will therefore buy goods. There’s a ton of small businesses I’ve seen on social media, a ton of people that I know run small businesses, and they’re like, ‘I make my goods in Vietnam. I have a great relationship with the small community in Vietnam that produces my goods. I don’t know what I’m going to do.'”