UK small and medium-sized enterprises (SMEs) are grappling with challenges due to the evolving global trading environment, driven by US tariff policies, according to a new report by Bibby Financial Services (BFS).
The 'Trading Places Report' highlights that over half (55%) of surveyed UK SMEs view tariffs as a major economic challenge, marking a 15% increase from the previous year.
Furthermore, nearly half (47%) of SMEs expect tariff uncertainty to reduce their overseas trading volumes by the end of this year.
The figure rises to 51% for businesses that rely on the US as their primary export market.
The financial impact of the new tariff regime is substantial, with average costs estimated at nearly £17,000 ($23,217) per business.
BFS said this financial strain adds to existing challenges faced by UK SMEs, including elevated interest rates and persistent inflation.
The Confederation of British Industry notes that these factors contribute to a bleak outlook for UK private sector businesses, the weakest since 2022.
Bibby Financial Services global CEO Jonathan Andrew said: “Our data clearly shows uncertainty regarding tariffs is having a direct impact on the plans of small and medium-sized businesses across the UK. However, while some importers and exporters are seeing profit margins eroded amid currency volatility, others are using the situation as an opportunity to review supply chains and customer networks.”
Although a recent trade deal between the UK and the US offers some hope, it may be insufficient for some SMEs.
One-fifth or 20% of SMEs are reducing their US customer base while nearly six in ten (59%) are switching to making foreign exchange payments in Euros and sterling to mitigate dollar volatility.
Tariff uncertainty and trading volatility are prompting SMEs to reconsider their international market priorities.
Many are exploring onshoring, nearshoring, or “friendshoring,” focusing on countries with political and economic alliances or Free Trade Agreements.
Nearly two-thirds (64%) plan to seek new trading partnerships in the next 12 months, an increase of more than ten percentage points from 2024.
Additionally, 36% of SMEs are expanding partnerships to mitigate risks from trade policy changes, tariffs, or geopolitical situations.
UK businesses are also evaluating which of the world's two largest economies, the US or China, will dominate in the future.
China is emerging as a top target for exports, with interest nearly doubling from 7% to 13% over the past year.
However, SMEs acknowledge the challenges of forging new relationships.
Story continuesMore than half (56%) believe Brexit has reduced their global competitiveness, with over three in five (66%) indicating they would vote to remain in the EU if given another chance, a 13-percentage point increase in Remainers since last year.
Andrew said: “The global trading map is being redrawn, and SMEs across the country are contemplating how they can protect margins and remain competitive amid a constantly moving trading environment.
“More than ever, it’s vital SMEs can get ahead of the curve, assessing how tariff agreements could impact their operations, as well as taking a proactive role in managing currency risk. It is these businesses and those who use the current uncertainty as an opportunity to seek new trading partnerships that will be well placed for growth in 2025 and beyond.”
"UK SMEs face challenges from US tariffs and trade volatility: BFS study" was originally created and published by Leasing Life, a GlobalData owned brand.
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