Commodity Watch: Tariffs & Trade Finance

AHMAD AL-SATI
PORTFOLIO MANAGER

Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York. 

Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser. 

A psychological barrier has been broken. Whether the current tariffs are modified, rolled back or negotiated away, no company or country is likely to again allow its supply chain and revenue streams to be subject to the whims of one actor. New changes in trade flow may affect producers, consumers and financiers in significant ways. This also however creates opportunities for funders that understand how to capitalize on the shifting dynamics. 

We see three key points in this emerging situation… 

1. Not all products are created equal: Tariffs will impact different goods differently. Consumers may postpone upgrading their iPhones but cannot delay charging them. Electricity is essential. Hardware is not. Consumers may not buy an extra Stanley cup but will certainly continue to fill their mugs with coffee. Coffee is essential (at least for me). Trinkets? Not so much. Yet, the production of these essential commodities (necessary for our everyday lives and the functioning of our economy) are subject to very specific weather conditions and topographies that cannot be changed nor moved. You cannot onshore a copper mine or a banana plantation. Instead, you must be able to finance the production and transport of these commodities from where they are produced to where they are consumed. To quote Frank Herbert: “The Spice must flow”. 

2. More capital will be required: Trade finance’s annual funding gap (the difference between supply and demand of capital supporting trade) isa staggering ~$2.5trillion . Tariffs may exacerbate that gap, as more capital is required to meet increased trading costs or to explore and develop new markets (after old ones close). At the same time, traditional funders (mostly banks), comfortable with existing trade routes and relationships, are typically not first movers and may in effect retreat. The resulting wider spreads will likely not reflect the actual investment risk. Rather, they will allow experienced financiers to fund trade at higher spreads for transactions (with the same basic risk) secured by essential, ever-in-demand, hard assets. 

3. Structure matters: The risks associated with funding trade will remain. The right structures and built-in capabilities to protect against non-payment and fraud are essential for any investor. Any financier must understand credit, local market and commodity dynamics and be able to effectively monitor, manage and monetize the underlying collateral. Without the scaffolding (and personnel) necessary to mitigate against these risks, investors cannot easily benefit from the growing and potentially lucrative opening presented by a new trade order.

Trade is as old as humans. Its ebbs are rare (more recently, it continued to flow through covid). With 8 billion people consuming more, current changes mean opportunity. Who will capitalize? 

The above article is an extract from a LinkedIn post by Ahmad Al-Sati from 06/04/2025.

¹ 2023 Trade Finance Gaps, Growth, and Jobs Survey | Asian Development Bank