Financial backbone of global trade is increasingly fragile due to climate shocks, currency volatility and tightening liquidity.
Over 90 per cent of trade relies on finance.
Climate impacts are raising costs, reducing access and deepening divides between financially strong nations and climate-vulnerable economies.
Global trade is holding steady despite tariffs, geopolitical tensions and supply-chain realignments. Goods trade grew an estimated 4 per cent in early 2025, defying predictions of slowdown. Containers are moving, shipping routes are adjusting, and firms have learned to navigate fractured geopolitics.
But the latest Trade and Development Report 2025 On the brink warns that this resilience masks a deeper vulnerability. The world’s trading system, it argued, increasingly relies not on logistics but on a highly concentrated financial architecture that is now being destabilised by climate shocks, currency volatility and tightening global liquidity.
“Trade is not just the concatenation of suppliers,” said Rebeca Grynspan, secretary-general of UN Trade and Development (UNCTAD). “It is also the concatenation of credit lines, payment systems, currency markets and capital flows.” And climate change, UNCTAD cautioned, is pressuring all of them at once.
More than 90 per cent of global trade now depends on trade finance — letters of credit, supply-chain financing, guarantees, digital clearing platforms and derivatives that allow exporters and importers to transact across borders. That means the real engine of world trade is balance sheets, not factories.
Behind every shipment sits a credit assessment. Behind every container, an exchange rate. Behind every supply chain, a network of correspondent banks.
Yet this backbone is becoming more volatile, disproportionately harming developing economies. Dollar funding shortages, currency depreciation, sanctions compliance, and risk-weighted capital norms have already narrowed the number of banks willing to support trade in Africa, South Asia and parts of Latin America.
Now, climate change is accelerating the squeeze.
As climate impacts intensify through storms, heatwaves, droughts and commodity disruptions, they are increasingly priced into financial markets. Banks tighten risk models. Insurance costs spike. Export guarantees shrink. Countries facing repeated climate shocks lose creditworthiness, limiting their access to trade finance precisely when they need it most.
According to UNCTAD, severe weather events are heightening the risk of defaults in agriculture and commodity industries. . In nations vulnerable to climate impacts, currency volatility is increasing hedging expenses. Financial institutions are re-evaluating the feasibility of providing loans to exporters in regions with elevated risk.
This creates a dangerous feedback loop: Climate shocks weaken financial stability → tighter trade finance → constrained export capacity → slower growth → even higher vulnerability to climate impacts.
For many developing countries, this is already visible in rising costs of letters of credit, reduced access to dollar clearing, and a shrinking pool of banks willing to process their trade transactions.
Global trade may seem strong, but UNCTAD cautions about a divided world: Nations with solid financial systems, reserve currencies and developed capital markets maintain steady trade, while those grappling with climate instability and financial marginalisation face higher costs, reduced trade, and greater economic shocks.
The green transition risks widening this divide. Exporters without access to affordable trade finance cannot upgrade production, meet green standards, buy cleaner equipment, or integrate into low-carbon global value chains. A climate-aligned future, UNCTAD argues, will be determined not just by energy choices but by who controls the financial plumbing of trade.
UNCTAD’s report makes a blunt point: the climate crisis is now a financial risk, not just an environmental one, and it is reshaping world trade from below.
To stabilise the system, it called for:
Expanded public trade-finance guarantees for climate-vulnerable economies
Multilateral development banks to provide counter-cyclical liquidity for trade
Reforms to derisk currency volatility for developing countries
Greater regional trade-finance platforms beyond dollar-based systems
Global rules to ensure green standards do not become new barriers to trade
Without such reforms, global trade will become increasingly fragmented, not because supply chains fail, but because finance fails first.
The world sees ships moving and containers flowing. Trade looks healthy. Markets appear stabilised.
But UNCTAD warned that beneath this surface lies an increasingly fragile financial scaffolding strained by climate shocks, currency swings and liquidity pressures. If the financial system behind trade buckles, the entire structure could tilt, it indicated.
The next global trade disruption, UNCTAD suggested, may not come from geopolitics or logistics, but from the world’s uneven ability to withstand climate-driven financial stress.