words Alexa Wang
It’s almost a truism that uncertainty is bad for investment and growth. When you don’t know what the future holds, you might be unable to make plans for your business. In the tariff-driven modern global economy, uncertainty is creating significant challenges for businesses of all kinds – and in particular those that rely on international trade. But there are also opportunities to uncover, too.
Let’s take a look at how a volatile global market might impact international businesses.
The Effects of Global Events on Currency and Trade
Shocks can take many forms. Wars in distant countries, pandemics, and new trade barriers can all impact the valuation of a given currency, or the volume of trade taking place between different countries.
Where currency is concerned, inflation is a major concern. If there’s a sudden shortage of fundamental resources like steel, fuel, and labour, then the result can be inflationary. The cost of production increases, and prices rise for consumers. This is ‘cost-pull’ inflation. By contrast, ‘demand-pull’ inflation, which occurs when demand for a given product surges, can enable prices to be forced up. For example, a tax cut on something like housing or food might prompt consumers to buy more of it.
Strategic Risk Management in Uncertain Times
It’s not always possible to predict the future, especially when considering a complex system like a global economy. As such, it’s worth taking a few precautions in order to absorb the extra costs.
These might include planning for a range of contingencies, and anticipating what situations might conceivably be disastrous for the business. It might also mean being able to accurately forecast future costs and profits.
Currency Exposure and How to Protect Your Business
If your business is likely to be adversely affected by changes in the value of a foreign currency, then it’s worth identifying strategies to lower the risk, and to pivot in the event of a sudden downturn. You might make use of forex hedging strategies, or diversify your operations across many different currencies. That way if one of them plummets, your holdings of the other will help you to absorb the bump.
Tools That Help Businesses Stay Ahead
In order to mitigate the risk and stay ahead of the competition, businesses might make use of a number of tools. The right payment platforms might allow you to easily deal with cross-border transactions, and limit the risk imposed by those transactions. Risk mitigation, similarly, can be handled in a number of ways – the most obvious of these being insurance against the specific kinds of risk faced by your business.
In many cases, consulting with outside experts in international trade can help the business to devise the most appropriate strategy for a given set of challenges.
