How geopolitics and supply chains are remapping business

A German mid-sized supplier of electric motors and power electronics is negotiating new framework agreements with a North American OEM in the autumn. The technical specifications are agreed quickly, but the purchasing department makes two unusual additional demands: first, the price must include a customs clause that cleanly reflects tariff pass-through. Second, proof is required for the origin of critical minerals, including scenarios for what happens in the event of export controls or supply stoppages. This is not mere formalism; it is a response to an environment in which country risk is no longer a political side note, but reaches directly into bills of materials and cash flows.

Trade credit insurer Coface describes a simultaneous increase in trade barriers and raw-material leverage for the automotive sector in 2026: since May 2025, exports of vehicles and auto parts to the United States have been subject to a 25% tariff rate (with exemptions for USMCA-compliant products from Mexico and Canada). In parallel, since October 2024 the EU has imposed anti-dumping duties on Chinese electric vehicles, varying by manufacturer between 27% and 45.3%. A third layer is raw-material policy: China uses rare earths as leverage and dominates global refined production at around 90%. In such a triangle of tariffs, countermeasures, and input risks, country risks become operational: delivery capability, cost structure, contract enforcement, and the probability that a receivable can actually be recovered in a dispute all hinge simultaneously on politics, macroeconomics, and sector conditions.

Country risks in 2026

In many companies, country risks are still read as a traffic-light system or in the form of a risk matrix (risk map): green = safe, red = dangerous. The Coface Country & Sector Risks Handbook 2026 suggests that this view is too narrow. First, risks shift in the transitions: countries can appear stable for years and then, through a combination of fiscal stress, political fragmentation, and external shocks, slip into a significantly worse risk profile in a short time. Second, country risks are more interconnected today. A shock in one country, for example, export restrictions on intermediate goods, can immediately affect other countries and sectors via value chains, payment terms, and inventory strategies.

Third, and crucial for corporate steering, country risks often become critical only through cumulative effects and, in extreme cases, threaten the going concern. Viewed in isolation, a single event often remains manageable: a temporary currency shock, an individual payment default, a short-term logistics backlog, or a local regulatory tightening. In practice, however, these factors do not occur neatly separated; they add up and reinforce one another: a devaluation raises import costs and squeezes margins, while interest rates and refinancing costs increase, payment terms lengthen, and receivable defaults rise. At the same time, a logistical bottleneck can inflate safety stocks, tie up liquidity, and put covenants under pressure. These cascades are precisely what can turn green or yellow individual observations into a red overall situation.

The implication is clear: a purely qualitative classification into traffic-light colours or risk-matrix fields systematically understates risk because it ignores correlations, concentrations, and tail risks. What matters, therefore, is aggregation: only by consolidating country-specific and sectoral sub-risks through the actual exposure (revenues, supplier shares, receivables balances, locations, financing structure) does it become visible which overall loss distribution is truly at stake. Quantification thus becomes a key prerequisite for robust decisions, on limit and credit policy, supply-chain diversification, pricing and contract design (Incoterms, collateral, advance-payment models), and on assessing when a scenario is no longer merely painful, but existential.

Coface defines country risk as the average risk that companies in a given country represent in short-term B2B transactions. The assessment covers how well companies can generate cash flows and how strongly that ability is influenced by structural factors (level of development, fiscal sustainability, governance quality, social and political risks, climate risks) as well as by the current business cycle. This view is complemented by the business-climate assessment: availability and reliability of financial statements, effectiveness of debt recovery, quality of institutions, and regulatory conditions for B2B business. For practical risk use, the combination of both axes is decisive: a country can be macroeconomically sound but have weak legal enforcement, or vice versa.

Three drivers shaping the risk profile in 2026

• Geopolitics and sanctions logic: Coface portrays 2025 as a thriller with numerous flashpoints, from intensified conflicts and blockades to unexpected escalations. For 2026, a moment of truth is outlined: the outcome of the Russia-Ukraine war, potential U.S. claims on Greenland, China's Taiwan policy, the stability of regimes such as Venezuela and Iran, and the question of European cohesion. In the case of Iran, the situation has expanded since the joint U.S. and Israeli airstrikes at the end of February and Iran's retaliatory attacks into an open military escalation, complete with threats up to the de facto closure of the Strait of Hormuz and attacks on shipping, rapidly globalising energy prices, insurance premiums, and supply-chain risks. For companies, this translates into heightened uncertainty regarding market access, payments, and additional risk scenarios. Sanctions and export controls do not operate only bilaterally; they increasingly run via third countries and connecting countries in Southeast Asia and Central America through which goods are being rerouted.
• Macro and financing: At first glance, global growth has not collapsed. Coface puts 2025 growth at 2.8% (advanced economies: 1.8%; emerging markets: around 4%). For 2026, however, a slowdown is expected: 2.6% globally, 1.6% in industrialised countries, and 3.8% in emerging markets, below potential. In such an environment, default risks often rise not because of a single crash, but because of margin erosion, refinancing stress, and delayed adjustment. Coface also emphasises that inflation may appear broadly under control, but structural drivers (commodities, fragmentation, ageing) persist. At the same time, deflationary impulses from Chinese overcapacity can strengthen protectionist reflexes in many countries.
• Climate and raw-material risks: Climate risks are explicitly embedded in Coface's country-risk methodology, but they are also visible through sector dynamics in 2026. In agrifood, Coface expects grain production to increase by 1-2% to around 2.911 billion tonnes, but simultaneously warns of La Nina as a potential disruptor (probability around 60% according to WMO/models). Such weather phenomena are not only harvest and price risks; they can also influence solvency along the chain, from farmers to processors to importers and financiers. In energy-intensive industries, by contrast, risk tends to shift more via price levels and availability.

Tariffs, rerouting, fragmentation: the new geography of trade

A central theme in the foreword to the current Coface Country & Sector Risks Handbook 2026 is the remarkable adaptability of the world economy, and the price that comes with it. A particularly illustrative example is the tariff dynamic of 2025, which Coface describes as a driver of uncertainty and volatility: U.S. tariffs reportedly reached levels of up to 35% at times, were later reduced to an average rate of around 17%, and, because of numerous exemptions, product classifications, and operational workarounds, were effectively closer to about 12%. Companies responded pragmatically as part of their risk management: importers diversified sources, shifted procurement to alternative countries, built safety stocks, or adjusted specifications; exporters routed goods flows more deliberately via transit and intermediate warehousing locations to better manage tariff rules, rules of origin, and administrative hurdles.

This pattern goes well beyond tariff policy and is described in the foreword as a broader mode of adaptation: just as parts of container shipping avoid the Suez Canal and instead route around the Cape of Good Hope, value chains are also shifting their routes, geographically, contractually, and operationally, to bypass risks. That can reduce dependency on single choke points, but structurally increases costs, lengthens lead times, and often burdens working capital: longer transport and processing times tie up liquidity, inventories rise, and DSO (days sales outstanding) frequently lengthen while the cash-conversion cycle deteriorates overall.

For country risk, this has an important consequence: not necessarily a higher probability of total default, but a higher probability of frictions that can accumulate, late payments, disputes over tariffs and origin rules, regulatory delays, additional documentation duties, compliance checks, or temporary import/export restrictions. Especially in countries with weaker business climates, such frictions can quickly tip local suppliers, freight forwarders, or sub-suppliers into liquidity stress, and then become very concrete in one's own supply chain: through delivery delays, quality issues, emergency sourcing at higher prices, or the sudden failure of individual nodes.

Sector dynamics: why country risk without an industry lens is blind

Coface consistently applies a dual country-and-sector approach. Methodologically, this is plausible because payment defaults rarely arise only from macro factors. In 2026, several sector fault lines stand out that translate directly into country-risk profiles.

• Automotive: The global transition to e-mobility continues, but it is increasingly geopolitically fragmented. Coface expects sales growth of around 2% in 2026 (after 2-3% in 2025) and volumes above 90 million vehicles. Tariffs and anti-dumping measures shift trade flows; bottlenecks in critical minerals increase risk premia in supply contracts. The EV share of new-car sales differs sharply (U.S. around 10%, Europe around 25%, China around 45%). For country-risk profiling, this means: countries are being reassessed according to their role in the EV ecosystem, as end markets, battery and chemicals hubs, raw-material suppliers, or transit countries.
• Energy: Coface expects an oil oversupply in 2026 and generally lower prices: Brent is projected to fall from USD 68 per barrel (2025) to around USD 60 per barrel (2026), the lowest level since 2021. In gas markets, easing conditions are described via LNG expansion; Europe's TTF is expected to stabilise at 28-30 EUR/MWh. For countries highly dependent on oil and gas exports, this can reduce fiscal room for manoeuvre and thus increase country risk, even if global demand remains stable. At the same time, lower energy prices relieve energy-intensive industries in importing countries, a classic case of country risk moving through sector channels.
• Chemicals: According to Coface, the chemical industry remains in a prolonged weak phase shaped by soft demand and chronic overcapacity. Europe in particular is under pressure: high energy and CO2 costs plus import competition from the U.S., the Middle East, and Chinese downstream exports. In practice, this leads to restructurings, location decisions, and potentially higher default rates in sub-segments, with feedback effects on regional banks, labour markets, and public budgets.
• Construction: After a subdued 2025, Coface expects growth in 2026, but very unevenly distributed. Housing markets remain fragile globally; falling rates increase purchasing power, but high long-term yields continue to dampen activity in core markets. Construction insolvencies are not only a sector issue: via local payment chains, bank exposures, and public investment programmes, they can become a driver of country risk.

If you look only at macro data, you underestimate recovery risk

Coface's scales range from A1 (very low risk / very good quality) to E (extreme risk / extremely difficult environment). The definitions make clear that A ratings are not based only on growth and inflation, but on institutions: availability of reliable corporate reporting, effective debt recovery, and an open, predictable market. In the B-to-E range, uncertainty, institutional weaknesses, and, in the extreme tiers, conflicts, civil unrest, or comprehensive sanctions dominate.

For companies, this yields a key differentiation: a strong country-risk rating without a strong business climate can be operationally riskier than a middling country-risk rating with solid legal enforcement. Those who focus only on macro data often underestimate recovery risk: the probability that an outstanding amount can actually be collected despite a formal claim.

Regional patterns: Europe, the Americas, Asia - different risk mechanics

• Europe/CIS: The map shows very strong ratings in Northern Europe and Switzerland, while parts of Eastern Europe and the post-Soviet space remain significantly riskier. For companies, it is particularly relevant that risks do not stem only from weak growth, but from political fragmentation and fiscal trajectories. Coface points to France as an example of political uncertainty and a difficult 2026 budget process, which, against very high public debt, creates additional pressure. In the CIS region, geopolitical uncertainty, sanctions, and restricted access to financing dominate.
• Americas: North America remains solid in aggregate, but certain risks shift via tariffs and industrial policy. A downgrade of Canada signals that even developed markets are not immune if trade regimes, interest-rate levels, or sector burdens (e.g., real estate, commodities) affect corporate cash flow. In Latin America, the picture remains heterogeneous: commodity dependence, political change, and currency volatility create distinct pockets of risk.
• Asia-Pacific: Two forces collide: structural growth momentum and geopolitical tension. Coface describes China as an economy in structural transition that must rebalance its growth model between production capacity and domestic demand. At the same time, Taiwan issues, export controls, and technology conflicts increase uncertainty. For companies, this means: Asia is not a uniform risk region; it is a network of production clusters, end markets, and transit corridors that reacts sensitively to political signals.

Upgrades and downgrades: signals for credit and investment decisions

Rating changes are especially valuable in an environment of interconnected risks because they often reflect the compaction of several trends: fiscal stabilisation or deterioration, institutional reforms or erosion, external shocks (tariffs, commodity prices), and sector cycles. In the Handbook 2026, Coface marks several upgrades and downgrades of country-risk assessments compared with the previous year. Upgrades include Chile, Poland, and Sweden, as well as Saudi Arabia and the United Arab Emirates. Downgrades affect, among others, Canada, Romania, Russia, and Malaysia, Singapore, Thailand, and Senegal.

For companies, such changes are not abstract macro information, but an operational steering variable. An upgrade can expand limit headroom in credit insurance and financing, enable more favourable payment terms, or facilitate investment decisions. A downgrade often has asymmetric effects: it can lead quickly to limit reductions, stricter collateral requirements, or longer decision paths at banks, frictions that become immediately visible in sales and procurement.

Table 01: Key upgrades versus the previous year (scale: A1 lowest risk to E highest risk)

Table 02: Key downgrades versus the previous year (scale: A1 lowest risk to E highest risk)

What companies should take away for their risk management

• Country risk as a contract variable: Payment terms, collateral, Incoterms, and escalation mechanisms should be linked to combinations of country risk and business climate. In A/B countries, credit management can focus more strongly on counterparties (debtor risk); in C/D/E countries, enforceability is often the bottleneck.
• Two-stage risk aggregation instead of additivity: Country risk and sector risk should not be treated additively. A middling country risk can, in a high-risk sector (e.g., construction in specific regions), very quickly lead to systemic payment-chain problems. Coface explicitly integrates network effects into its sector methodology: a shock in one sector/country can propagate via linkages into other sectors/countries. For risk management, this means making dependencies visible (customer-supplier networks, critical inputs, transit countries) and modelling scenarios.
• Early warning via trade and commodity indicators: Tariff announcements, anti-dumping proceedings, export controls, or commodity restrictions are not merely policy news, but cash-flow risks. Those who integrate such signals into sales and procurement planning can adjust inventory, alternative sourcing, and price-escalation clauses early. This not only reduces default probabilities, but also stabilises service levels and margins.
• Hedging and financing as prerequisites for growth: Credit insurance, forfaiting, factoring, or bank guarantees are, in an environment of slower globalisation, not just cost items, but levers for capacity and growth. What matters is aligning limits with country and sector logic: an upgrade can open additional headroom; a downgrade can trigger limit cuts that must be operationally prepared (e.g., alternative payment channels, advance payments, delivery-stop triggers).

Technology, regulation, data: the invisible risk driver

Beyond tariffs, energy prices, and raw materials, a risk factor moves more centrally into focus in 2026 that often appears only at the margins of classic country-risk maps: digital regulation and technological dependencies. In its foreword, Coface describes tensions between the U.S. and Europe over digital regulation as part of the 2025 uncertainty landscape. In practice, this means governments and regulators are increasingly intervening where data flows, software is operated, and critical digital infrastructure is built, areas that have become the operational foundation for almost all industries.

At the same time, the sector profiles show that demand remained high in ICT despite more difficult trading conditions because investment in artificial intelligence is acting as a growth engine. For 2025, sustained strong revenue growth is described for the sector; in semiconductors, an increase of around 11% is cited, driven above all by demand for high-performance GPUs and memory technologies. By contrast, chips for classic industrial applications, including automotive, remain weak for longer. In parallel, server shipments are rising, with AI servers growing particularly strongly; IT services and software also continue to expand. The picture is clear: value creation is shifting toward data- and compute-intensive capacities that are concentrated in a small number of key technologies and provider ecosystems.

This development is relevant for country risks because technology policy now functions like a trade barrier, only faster and often less visible. Export controls, investment screening, data localisation, cloud-use requirements, security certifications, or restrictions on encryption and cross-border data transfers can change market access, delivery capability, or operating permits practically overnight. A country that is heavily dependent on a single technology ecosystem (hardware, cloud, chips, platforms) becomes vulnerable not only cyclically, but strategically: if a critical component can no longer be delivered or data can no longer be processed in a certain region, the operational capability of entire industries can be constrained at short notice.

In this logic, Europe sits between two fields of tension: on the one hand, the desire for open trade and new partnerships (for example with Latin America); on the other, an increasingly tougher stance toward China in sensitive technologies and supply chains. Coface also emphasises that the closer interlinking of European defence and industrial policy will be a major challenge in 2026, with direct implications for standards, procurement, security requirements, and approval processes.

For companies, this creates a very practical test that goes beyond formal country-risk ratings: in which markets are compliance, audit, and documentation requirements increasing so strongly that they effectively make business more expensive and slower? Because even if a country remains stable in the rating, the day-to-day business climate can deteriorate noticeably, for example through longer approval timelines, additional evidence requirements for data flows, stricter supplier documentation demands, or new cloud rules. The risk driver remains invisible because it rarely appears as a spectacular event, but rather as the sum of small rules whose impact can ultimately be as decisive as tariffs or commodity shocks.

Outlook: what could make 2026 a turning point

Coface speaks of a possible moment of truth: the major conflict lines will not necessarily be resolved in 2026, but decisive course-setting could occur. For companies, it matters less whether a single forecast materialises than whether they work with ranges and scenarios: what happens if trade conflicts escalate again and tariffs are once more used as diplomatic leverage? How do ratings change if oil prices remain lower and fiscal buffers shrink? Which countries benefit as transit and connecting locations, and where do new concentration risks emerge?

The central finding from the Coface Handbook is therefore not pessimistic, but operational: globalisation remains a dynamic force, but its circuits are becoming less efficient. Anyone seeking to manage country risks professionally in 2026 does not need a static ranking, but a steering model that translates rating changes, sector cycles, and network dependencies into concrete decisions, from credit limits to supplier strategy.

The Coface Country & Sector Risks Handbook 2026 depicts a world economy shaped less by one major shock than by many small frictions: moderate growth below potential, renewed trade conflicts, geopolitical fragmentation, and sector transformations. For risk management, this means: country risk is not a static score, but a dynamic interplay of macro fundamentals, politics, institutions, and sector dynamics. 2026 is likely to become a stress test of whether companies steer internationalisation in a way that treats resilience not as the opposite of globalisation, but as its new operating mode: more diversified, more data-driven, and consistently secured through contracts.