A New Era of Trade Uncertainty

On 2nd April 2025, President Donald Trump announced new tariffs impacting global trade, including the United Kingdom. This move introduces significant uncertainty for businesses, particularly SMEs with tighter margins. The tariffs include a 10% levy on imports from all countries, alongside higher “reciprocal” tariffs on nations with substantial trade deficits with the US. Financial analysts and economists have voiced concerns about potentially severe negative consequences, possibly exceeding the economic impact of the Great Depression. This report analyses the risks for UK SMEs and provides actionable strategies for business owners and fractional Chief Financial Officers (CFOs) to navigate this evolving situation. Fractional CFOs are crucial in offering strategic financial planning and risk management expertise to SMEs.

The Global Situation of Tariffs: Who is Affected and How?

The new tariff regime has two tiers. From 5th April 2025, a universal 10% tariff applies to all goods entering the US, affecting over 100 trading partners. Subsequently, from 9th April 2025, higher “reciprocal” tariffs were imposed on around 90 countries, ranging from 11% to 50% based on the trade imbalance with the US. These tariffs target nations with significant trade imbalances.

Major trading partners face substantial reciprocal tariffs, including China (34%), the European Union (20%), Vietnam (46%), India (26-27%), Japan (24-25%), South Korea (25%), Cambodia (49%), and Taiwan (32%). Canada and Mexico are exempt from reciprocal tariffs for USMCA-compliant goods, but other goods may face a 25% tariff.

The United Kingdom faces the 10% universal tariff, with the automotive industry particularly affected by a 25% tariff on foreign-made cars. Globally, the most affected sectors include consumer goods, healthcare, industrials, technology, and automotive. Analysts predict potential price increases, for example, clothing prices could rise due to tariffs on textiles.

Economic Fallout: Assessing the Potential Risks and Negative Consequences

These tariffs are expected to trigger several negative economic consequences, primarily increased inflation. Rising import costs will likely be passed to consumers. Estimates suggest a potential increase in US consumer prices, costing households thousands of dollars annually. This inflationary pressure can reduce purchasing power and decrease consumer spending. Experts warn that low-income families will be disproportionately affected.

Economists also foresee slower economic growth, with some raising the possibility of a global recession. Financial markets have already shown instability, with stock markets and commodity prices falling. This volatility reflects investor uncertainty and could lead to a freeze in business investment.

Established global supply chains are expected to be significantly disrupted, potentially leading to increased costs and logistical challenges as businesses restructure their sourcing. The risk of escalating trade wars is also high, with countries like China already announcing retaliatory tariffs. Such cycles of tariffs and counter-tariffs can further hinder global trade and economic growth.

Comparisons have been drawn to the Great Depression and the Smoot-Hawley Tariff Act of 1930, which is widely seen as having worsened the depression. Some analysts believe the current tariffs could have an even more severe impact. President Trump’s assertion that tariffs could have prevented the Great Depression is historically inaccurate and refuted by experts.

The Impact on UK SMEs: A Closer Look at the Challenges

UK SMEs face increased export costs due to the 10% universal tariff, potentially making their products less competitive in the US market. For SMEs with tight margins, absorbing this cost may be unsustainable, leading to reduced profitability and potentially decreased demand. One UK business reported significant US sales and concerns about absorbing the tariff and communicating price increases.

Specific sectors are particularly vulnerable. The automotive industry faces a 25% tariff, potentially reducing US demand for UK-made vehicles and parts. Food and drink exporters will also face increased costs and competition. The broader manufacturing sector is at risk due to increased export costs.

The uncertainty surrounding the duration and potential escalation of these tariffs can hinder strategic decision-making by UK SMEs, leading to hesitation in investments and expansion.

UK business groups, including the Federation of Small Businesses (FSB) and the Confederation of British Industry (CBI), have voiced strong concerns about the potential damage to SMEs, especially given the significant proportion of small UK exporters selling to the US. They have urged the government to provide support. The British Chambers of Commerce also anticipates widespread disruption.

Actionable Strategies for SME Owners: Weathering the Tariff Turbulence

Despite the challenging outlook, UK SME owners can adopt several proactive strategies to mitigate the negative effects of these tariffs and build resilience in their businesses.

UK SMEs should begin by thoroughly reviewing their current exposure to the US market, both in terms of sales and procurement. Understanding which products are most affected by the tariff increases is crucial for prioritising strategic responses. Actively exploring new export markets beyond the United States is a vital step in reducing reliance on a single, now more challenging, market. This includes researching countries with existing trade agreements that could offer more favourable conditions.

Resilience and Proactive Adaptation in the Face of Global Trade Shifts

President Trump’s newly imposed tariffs represent a significant challenge to the global economy and pose specific risks for UK SMEs. The potential for increased inflation, slower economic growth, market instability, and disrupted supply chains is substantial. UK SMEs, particularly those in the automotive, food and beverage, and broader manufacturing sectors with significant exposure to the US market, face increased export costs and potential declines in demand.

However, by adopting proactive strategies such as diversifying markets and supply chains, optimising operations, and strategically adjusting pricing, SMEs can build resilience and mitigate some of the negative impacts. Fractional CFOs will play a crucial role in guiding their SME clients through this turbulent period by providing expert financial planning, risk management, and strategic advice. While the immediate outlook may appear challenging, a focus on adaptability, innovation, and exploring new partnerships could uncover unforeseen opportunities for UK SMEs to traverse these global trade shifts and position themselves for future success. Staying informed and seeking expert guidance will be paramount for SMEs as they traverse this evolving trade situation.

Works cited (and extra reading if you’re really keen..)

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The New Era of Trade Uncertainty: Challenges and Strategies for UK SMEs