Trade off
Embracing uncertainty and adapting to change in global trade
Effective trade, characterized by openness, fairness, and strategic alignment, has been shown to improve economic efficiency – this is what economic theory suggests, and historical evidence supports. With global trade, countries can allocate resources more efficiently by specializing in what they produce best and accessing goods and services that would be more costly or resource-intensive to produce domestically.
When businesses expand their customer base and access to suppliers—often through global trade—they face more competition, which drives them to improve efficiency and quality. Serving a larger market allows them to produce at a greater scale, reducing per-unit costs (economies of scale). At the same time, exposure to diverse markets and partners leads to learning, adaptation, and innovation, as companies encounter new ideas, technologies, and customer needs.
Balancing the benefits and challenges
If trade can deliver economic growth and more efficient outcomes globally, why would anyone want to put barriers to trade?
The answer is simple – the efficiency gains from international trade are not shared equally. For example, moving production facilities to more efficient locations can result in job losses and unemployment in other countries. These distributional effects can be quite stark, with significant shifts in the supply and demand of goods and services. Prices inevitably change, impacting households, both as consumers and wage earners, as well as companies, both as suppliers and producers of goods and services.
Governments will, at times, attempt to protect local production
Protectionist measures are, as a result, inevitable – governments will wish to shield local businesses and the labor market. In some cases, barriers may also be used to create a level playing field if standards and regulations are not common and there is a need to remove the differences in terms of quality of products and services.
Predictability and stability on the global trading scene are crucial
The energy and bioindustry sectors operate on a global scale, within a framework of complex supply chains and interdependent markets. Over time, long-term trading relationships have been established across continents, driven by technological advancements, policy frameworks, and evolving demand patterns. As a result, the volume and value of traded goods in these sectors have steadily increased, reflecting their growing strategic and economic importance. For example:
Global crude oil trade is estimated at around USD 1.5 trillion, with 10 countries accounting for around 75% of the global oil exports;
- The US is the world’s largest LNG exporter, with such exports valued currently at USD 35 billion. Europe remains the largest market for US LNG;
- Europe has been working on removing friction between trading powers within Europe – European electricity exports are now valued at around USD 130 billion, with new cross-border infrastructure projects developed every year;
- Wood products, pulp, paper, and packaging products trade between Canada and the US adds up to USD 30 billion;
- China has become the main outlet for Brazilian eucalyptus pulp (USD 4 billion or 50% of exports), and China is the main source of equipment, energy infrastructure, and vehicles, with a total value of USD 27 billion.
Changes in bilateral trade – how can companies adapt?
Tariffs not only change global trade dynamics, but they also have knock-on impacts on supply chains and demand for exported goods. Can companies mitigate this in the short term? Should they be considering changes in their business models and trading channels?
In the case of commodities, tariffs will inevitably trigger reviews of the existing pricing practices. A 10% tariff for EU countries exporting to the US prompted several suppliers to publicly announce price increases. Contract renegotiations and discussions on “sharing” tariff costs with customers and the ability to push increases through are ongoing. These issues are a double whammy, especially for declining market segments, as higher costs amplify possible substitution and demand decline.
Even the mere threat of a tariff can cause companies to proactively seek alternative markets and customers in order to circumvent potential costs and disruption. For buyers of commodity products, there could be alternatives available from zero or lower tariff sources. Those burdened by higher tariffs will have a competitive disadvantage and a potential loss of market share. For more specialized products, buyers have fewer options and, at the extreme, push price hikes to consumers or may have to sacrifice product quality to keep prices down.
Bans and tariffs work as a catalyst for long-term change as well, forcing companies to adapt to new circumstances to stay relevant in the business and to grow.
An example of this that led to industry restructuring is the tariffs imposed on Canadian softwood lumber imports to the US, especially in British Columbia and Quebec, which resulted in companies investing in and acquiring assets in the US South. This example adjustment has taken more than 25 years and could accelerate with any additional reciprocal tariffs.
China’s National Sword policy (2018) banned recycled fiber imports to address concerns about contaminated raw materials. The policy was disruptive to the global waste trade. Exporters and developers responded by building facilities that further process this recycled material into recycled fiber-based market pulp, establishing mills in other Asian countries like Thailand and Myanmar for shipment to Chinese mills or for expanding the local recycled fiber-based industries.
In the energy sector, one of the most dramatic shifts in recent years occurred following Russia's invasion of Ukraine. Europe started to significantly limit the import of Russian gas, effectively reducing any gas trade to the absolute minimum. Europe adapted by shifting to other forms of fuels where possible, replacing some Russian gas with other sources, such as predominantly US-sourced LNG.
The facts, examples, and trade-offs discussed above highlight a central truth for the bioindustry and energy sectors: uncertainty is not an exception, but a constant. Successfully navigating these dynamic landscapes requires not only resilience but also a proactive embrace of change. Organizations that remain agile, adaptive, and forward-looking will be best positioned to thrive amid evolving market conditions, regulatory shifts, and technological disruptions.
Authored by Soile Kilpi and Kostas Theodoropoulos, AFRY Management Consulting.
This article is part of our AFRY Insights publication series, where experts from AFRY Management Consulting share their insights into emerging global trends across the energy and bioindustry sectors, as well as sustainability transformation.
