How British businesses can tackle Trump's tariffs

At first sight, small and medium-sized enterprises (SMEs) in the UK may appear to be less vulnerable to the trade tariffs president Donald Trump has unveiled in recent weeks. Smaller firms tend to be more focused on domestic sales. These won’t be affected by the 10% tariff that the US has now imposed on imports from the UK. However, SMEs should not be complacent. The majority of British businesses are likely to take a hit from the chaos caused by Trump’s efforts to reorder global trade. Even those not directly in the firing line will suffer collateral damage.

For one thing, many SMEs do make significant exports to the US, from scotch whisky producers to manufacturing companies. The UK’s vehicle industry, subject to a higher tariff of 25%, includes many small suppliers that sell components to US manufacturers. British retailers that manufacture and sell goods to the US via China could also suffer. The US’s battle with that country will next month see it suspend the de minimis exemption that currently means goods valued at less than $800 are excluded from tariffs even when they come from China. For any British firm shipping that way, this will be a significant problem.

Moreover, even if your business makes no sales at all to the US, or even outside the UK, it is still threatened by the economic slowdown this battle over trade is likely to cause. Banks are now predicting a global recession as their base case scenario for the next 12 months, hitting international demand for most products and services. In the UK, the Office for Budget Responsibility (OBR) last month predicted that tariffs on the UK could wipe a full percentage point off economic growth; the OBR’s forecasts were based on a 20% tariff on UK goods, rather than the 10% actually imposed, but there will still be a significant effect.

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How, then, do SMEs plan for what lies ahead – particularly given the unpredictability of the Trump administration, which has already changed course several times? The first step, say experts, is to assess your direct exposure to the new tariffs. What, if anything, do you currently sell to the US? How exactly will these sales be affected by tariffs – what tariff will apply?

Tackling Trump's tariffs: sharing the pain

Remember that, in theory, at least, it is the importer who is responsible for paying tariffs. It’s your customer in the US – whether a consumer or a business – who faces the immediate charge. You therefore have to decide whether you’re willing and able to share this pain, perhaps by reducing prices. That will depend on the margins you enjoy on these sales and the extent to which they matter to your business. You may also be able to recoup some of this extra cost by asking your own suppliers to reduce their prices, where this is relevant to your business.

Working through these questions should give you a much better idea of whether your sales to the US remain viable. Some firms may simply decide not to continue exporting to US customers because such sales are no longer profitable; or you may feel that you can accept reduced profitability, particularly if you’re able to pass some of the hit on to customers and suppliers.

In addition, don’t overlook the increased administrative burden now likely on most exports to the US. If you’re shipping to US customers, you may need to factor in longer customs processing times, higher fulfilment costs, and increased customer service difficulties related to unexpected duties. These will carry additional costs and could threaten relationships with customers.

Addressing such issues as early as possible is important. You may be able to agree new methods of operating with customers. Different types of payment arrangements may help you manage cash-flow problems. Disputes can be avoided.

It also makes sense to investigate whether you can shift sales to other international markets. Demand from customers in markets such as the European Union may increase, as they look for trusted suppliers closer to home. This business may now be more profitable than US sales.

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