Four Ways Trade Credit Insurance and Risk Management Can Reduce the Impact of Tariffs on Businesses

Companies that import and export goods and services within North America are facing the prospect of a substantial American tariff on Canadian and Mexican goods and services. Those same companies must also deal with retaliatory tariffs from both north and south of the U.S. border.¹

Canadian and American businesses with cross-border trade need to consider the enormous financial challenges. Businesses could see sales shrink abroad due to higher prices while paying more for foreign sourced products and parts.

The risks go beyond higher costs, including decreased access to capital. However, trade credit insurance, coupled with thoughtful steps to improve risk management, can help mitigate the impact of tariffs on business and actually provide opportunity for growth.

The impact of tariffs on business and risk

The supply chain in North America is highly integrated. For example, untold automotive parts and finished vehicles flow between the U.S., Canada and Mexico every day, with 3.6 million passenger cars made in Canada and Mexico imported into the U.S. in 2024.²

Trade tariffs could result in delayed or non-payment of goods from companies that cannot afford to pay tariffs or whose business comes under severe financial stress from export sales.

As a result, there’s been heightened interest in trade credit insurance, which protects policyholders from non-payment of invoices for goods and services. These policies have become important to the growth of trade, as they can protect businesses against customer defaults, insolvencies, non-acceptance of goods, civil unrest and losses resulting from currency devaluation.

In addition, lenders often allow organizations with trade credit or accounts receivable insurance to borrow against a higher percentage of their accounts receivable than for companies that don’t. That gives companies with trade credit insurance access to additional capital for growth.

However, as the amount of accounts receivables increases due to tariffs, insurers are likely to encounter capacity issues, as credit strength weakens and demand for coverage increases. That could decrease the effectiveness of trade credit insurance to expand companies’ capital base. In addition, lenders are likely to tighten up lending on accounts receivable from foreign buyers and possibly make trade credit insurance a condition of lending.

Turning uncertainty into opportunity

Despite the uncertainties involving tariffs, organizations can help minimize the effects or even use it as a springboard to opportunity.

Here are four ways to act:

1. Strengthen business relationships. Tariffs can affect a company’s cross-border buyers and suppliers in equal measure. Talking with key customers and suppliers as early as possible will help both parties arrive at solutions that will be mutually beneficial to all and help ensure business keeps flowing.

2. Diversify the customer base. Work with your broker to identify possible new customers and suppliers that are in a strong position to deal with fallout from tariffs. Companies will benefit from the opportunity to expand sales beyond North America.

3. Diversify financing. It’s important to seek additional or non-traditional sources of credit as banks tighten conditions. For instance, vehicles like factoring (or reverse factoring) can provide immediate payments on accounts, improving cash flow.

4. Purchase trade credit insurance. Insurance providers will work to increase their coverage in order to grow premiums for trade credit insurance in 2025. However, demand for coverage is likely to increase and the number of claims is likely to rise, which could drive up premiums. Trade credit insurance can serve as a bedrock risk and financial management tool. Discuss with your broker which options best meet your needs.

Contact a HUB International expert on trade credit insurance to learn about protecting your business against tariffs.

¹ Associated Press, “US tariffs take effect and Mexico, Canada and China retaliate with their own tariffs on the US,” March 4, 2025.
² S&P Global, “Trump’s automotive tariffs would impact nearly all OEMs,” January 28, 2025.