The commercial lending environment has always been shaped by economic cycles, industry trends, and regulatory changes. But today, banks and financial institutions are facing a new variable that’s harder to quantify: geopolitical uncertainty. From shifting U.S. trade policies to conflicts overseas, these dynamics are creating ripple effects that borrowers and their lenders must navigate carefully.
Washington’s Policy Shifts & “Liberation Day”
On April 2, 2025, President Donald Trump declared a national emergency over the United States’ trade deficits and unveiled sweeping global tariffs, a move he branded “Liberation Day.” Nearly five months later, the impact of these changes continues to unfold.
For many businesses, this policy shift has raised fundamental questions:
- Should they continue doing business in the U.S.?
- What adjustments to supply chains and production models are necessary?
- How can they plan for the long term when short-term strategies are still up in the air?
For lenders, this degree of instability makes lending and loan review more complicated. Predicting borrower performance becomes more difficult when costs, supply sources, and demand are constantly in flux.
Supply Chains, Manufacturing, & Local Economies
Take the example of Tyson Foods. While its U.S. factories are not directly impacted by tariffs, the materials used in production are. To manage rising costs, the company restructured plants, introducing automation that reduced labor needs.
The result? Lower production expenses for the company, but devastating economic consequences for small towns where Tyson had been a primary employer. These communities, once stable, are now facing unemployment, migration, and a shrinking tax base.
And it’s not just manufacturing. Tariffs on imported goods can also squeeze industries like auto dealerships, which often rely on global supply chains for parts and vehicles. Higher costs can slow sales, pressure margins, and ultimately affect loan performance for banks that lend to these businesses.
Beyond large employers, the ripple effects extend to small businesses as well. Local shops, restaurants, service providers, and other community-based enterprises often see reduced foot traffic and declining revenues when their customer base is hit by job losses or higher costs. These are the very businesses that rely on community banks for lending, making their vulnerability an important consideration.
For banks with exposure to these regions, understanding the local ripple effects becomes critical. Loan performance isn’t just tied to the company’s balance sheet… it’s tied to the health of the communities that depend on those companies.
Global Tensions Adding to the Pressure
Tariffs aren’t the only source of disruption. Ongoing global conflicts, such as the war in Ukraine and turmoil in the Middle East, are compounding supply chain instability. Ukraine, one of the world’s leading food suppliers, continues to face export challenges, which drives up input costs and affects industries far beyond agriculture. The Middle East, home to some of the world’s largest oil producers, also poses risks. Disruptions in the oil supply chain can trigger sudden price spikes that ripple through transportation, manufacturing, and consumer markets.
Combined with U.S. trade policies, these pressures create uncertainty about which sectors will face the greatest challenges. For lenders, that uncertainty translates into portfolio risk.
What This Means for Lenders
The question for banks isn’t whether these disruptions will affect commercial borrowers, it’s how, when, and where the impact will be felt most. Some key considerations:
- Sector-specific exposure: Manufacturing, agriculture, and logistics are particularly vulnerable, but ripple effects can extend into real estate, retail, and even municipal borrowing.
- Regional impacts: Local economies tied to single employers or industries may be disproportionately affected.
- Stress testing: Banks should begin stress testing portfolios under various geopolitical and economic scenarios to identify vulnerabilities.
- Customer education: Lenders can provide value by educating business clients on how to strengthen cash flow, diversify supply chains, or restructure debt in response to shifting conditions.
The Bottom Line
The current geopolitical environment is creating a landscape of instability that makes business planning, and by extension, lending, more difficult. As policies, conflicts, and supply chain disruptions continue to evolve, banks and financial institutions will need to sharpen their ability to predict, adapt, and support their clients through uncertainty.
The challenge for lenders is clear: identify which sectors and regions are most at risk, plan for volatility, and position themselves as trusted advisors to borrowers navigating this unpredictable terrain.
Given the pace of change and ongoing uncertainty, we’ll continue to share insights on this topic—so stay tuned. If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
