One year ago, I observed in flow’s ‘A different level of athlete’ that the world was as complicated as it had been in 40 years. Now we see an intensification of this – the world of free trade is called into question as global power dynamics shift and multilateralism is subject to increasing strain.

While clients are taking something of a ‘wait and see’ approach – as nobody knows what is going to be on the table from one quarter to the next – concerns around tariffs and resource nationalism continue to redefine supply chains and trade corridors. This article re-examines corporate and financier responses to this and the ensuing opportunity for Europe to strengthen its sovereignty as a bloc to promote growth and competitiveness. It also underlines that global banks are increasingly technology companies as they build platform partnership networks to support their regional economies.

Washington wants to attract manufacturing into the US and provide an environment where the country turbocharges its own economy. It has many positives such as energy security, deregulation and technology (Google, Apple, Facebook and Amazon are all American platforms). At the same time, supply chain logic continues to move from being just cost-driven to risk-, security- and cost-driven. Scale also plays a part. For example, the higher end of the pharma, tech and luxury car sectors do invest in the US – look at Roche, with US$50bn of investment (22 April¹), and Novartis, with US$23bn over the next five years.² But for smaller companies – such as those within a supply chain of car components – the margins are just too small. The other determining factor is region. A Greenwich Research study confirms that the back and forth on tariffs has had a significant effect on companies in the US and Asia, while producing a more muted impact on large companies in Europe.³

Many German companies are still in strategising mode, waiting for the tariff situation to play out and thinking about whether to invest in the US. Only 10% of Germany’s exports go to the US and for many small and medium-sized enterprises (SMEs), the US market is not particularly relevant. More widely, this is a world where contingency is business as usual. As companies rethink their supply chains, the financial supply chain needs to be just as agile. Companies want to reduce their dependency on one bank or one regulatory regime; we are seeing companies that have traditionally had multiple US banking facilities now seeking to diversify their risk and better understand the opportunities in Europe.

Europe needs to take a leaf out of the US book by boosting its own manufacturing capabilities and defining its growth agenda. The bloc can no longer count on the US to continue its long-running security support, and decades of underinvestment have caught up with it. This is now being addressed.

“Supply chain logic continues to move from being just cost-driven to risk-, security- and cost-driven”
David Lynne, Deutsche Bank

Four years ago, my predecessor, Stefan Hoops, wrote in the 2021 edition of flow, “The completion of the European single market should be driven forward quickly with harmonisation of patent laws and data standards, and the establishment of a capital market and banking union, to name but a few structural milestones”.⁴ It is good to see the EU is now grasping the nettle, stating in the January 2025 launch of its Competitiveness Compass: “Over the last two decades, Europe has not kept pace with other major economies due to a persistent gap in productivity growth. The EU has what is needed to reverse this trend… provided it acts urgently to tackle longstanding barriers and structural weaknesses that hold it back.”⁵

Financial institutions such as Deutsche Bank are ideally placed to help corporate clients play their part in this growth journey. Our CEO Christian Sewing’s vision of a European capital markets union could be within reach.⁶

In March, Germany passed legislation to exempt deterrent and security expenditure from its strict debt rules, creating a €500bn infrastructure fund. It was able to do this from a position of comparative debt to GDP ratio strength. Germany needs better-quality physical and digital infrastructure – roads and railways, and the ability to conduct business in a secure environment. This connects to the requirement for more housing and improved all-round digital technology – not only its data centres, but also its broadband. Germany also leads on bolstering defence capabilities.

All of this generates demand for structured and project finance, as well as supply chain finance and cash management support – and we are seeing an uptick in demand for this. In Europe, export credit agencies and development banks work with the private sector with different guarantees and structures to get as much bang for the euro buck as possible. In the past, Europe has relied on imports for components and equipment, but it is now looking to reduce this and increase home-grown capabilities. For example, some of our German Mittelstand clients in the mechanical engineering space are redeploying their output from internal combustion engine car components to defence equipment. This generates demand for capex to build and change factories and for working capital to import, manufacture, store and sell what they have produced. Some have started increasing production already.

With Europe stepping up as an engine of free trade, its banks need to be in pole position to support this. With only a handful of banks comprising a truly global network, scale and stability are key differentiators – not just for navigating trade corridors in shifting supply chains, but also in the core platform technology to process cross-border payments in real time, deliver instant payments, provide digital currency services, and offer post-trade atomic settlement where required.

We continue to build our core technology capability. Fintechs have become clients and partners rather than competitors, and that is continuing. For example, we recently signed a platform agreement with Partior, a blockchain fintech that provides atomic settlement across a diverse range of tokenised instruments.⁷

Thanks to the implementation of ISO 20022, where the industry and the regulator determined a rich messaging standard, there is more successful straight-through processing. But much at the input and output stage remains unstructured. This is where building the right data model – with artificial intelligence layered on – can create standardisation, personalise client interfaces, and improve data analysis outcomes while delivering efficiency and interoperability.

We provide an operating platform for our clients to run their day-to-day business. In some countries, we are the only provider of cash management, working capital or custody services. That is a huge responsibility.

David Lynne is Head of the Corporate Bank at Deutsche Bank

Sources

¹ See roche.com
² See novartis.com
³ See greenwich.com
⁴ See "All-in for Europe" at flow.db.com
⁵ See ec.europa.eu
⁶ See ft.com
⁷ See corporates.db.com