Mandula Moments: Impact of trade wars and tariffs on SMEs in the UK and EU (Part 3)

Continuation from Part 2

Small Enterprises (10–49 employees)
Small enterprises have more bandwidth than micro firms but still face resource constraints relative to larger companies. They often have some managerial specialisation and can dedicate part of a team to strategic responses. Key strategies for small businesses could include all of the options mentioned in the micro discussion and also include:

1. Conduct formal risk assessments: A small manufacturer or wholesaler should conduct a detailed risk audit of its supply chain and markets to identify vulnerability to tariffs. This involves mapping out which inputs might face tariffs, which export markets are at risk, and how severely the business would be affected in various tariff scenarios. Proactively, companies can simulate impacts (e.g., “What if a 15 per cent tariff were imposed on our primary imported raw material?”) to gauge the hit to costs. By quantifying risks, small firms can prioritise which areas to address first and develop contingency plans. For example, if a certain component is subject to a new duty, the firm’s plan could be to switch to a European supplier or an alternative material. Urgent “tariff scenario planning” helps pinpoint at-risk parts of the business so that limited resources can be applied where they matter most.

2. Diversifying suppliers and markets if feasible: Unlike micro businesses, small enterprises are often engaged in regular importing/exporting, which gives them opportunities to diversify. To reduce exposure, a small firm should avoid relying on a single foreign supplier or market. This might mean qualifying backup suppliers in different countries (for critical inputs) and exploring new sales markets through trade fairs or e-commerce. The aim is to ensure that if one trade route closes due to a tariff, others remain available.

3. Small firms can also take advantage of free trade agreements (FTAs) – both the EU and UK have numerous trade deals that eliminate or reduce tariffs with partner countries. A UK small business facing US tariffs might pivot to increase sales in other markets (like Australia or Canada), while an EU firm could seek growth in markets covered by EU trade deals like Japan or South Korea, thereby offsetting losses. Diversification does require effort and research, but even a modest widening of supplier/customer options can significantly mitigate risk.

4. Upgrade trade compliance and knowledge: Small enterprises should consider investing in building their knowledge of trade regulations and compliance. This might involve training an existing employee to become an internal expert on customs procedures or using affordable consulting services for complex cases. Ensuring correct classification of goods, understanding rules of origin, and securing any duty exemptions can save a small business time and money. Compliance is increasingly seen as essential: new rules (such as forced labor bans or sustainability requirements) mean customs authorities are scrutinising shipments closely. A small firm that keeps impeccable records and complies with all regulations can avoid border holdups and even gain a reputation as a dependable supplier.

5. Financial tools and buffers: Tariffs can negatively impact cash flow, so small businesses should utilize financial tools to cushion the blow. For example, they can work with their finance providers or trade finance providers to extend credit lines or secure working capital to cover higher import costs while sales adjust.

6. Small firms should also explore instruments like currency hedging (to manage exchange rate swings due to trade tensions) or insurance (political risk insurance for volatile markets, or credit insurance if buyers might default). Building a financial buffer – retaining some earnings or securing contingency funding – is prudent so that a tariff shock doesn’t immediately threaten solvency. Indeed, recognizing the strain on SMEs, a significant amount of the UK’s added support package is earmarked for businesses hit in the short term by tariffs and uncertainty. All of these options suggested by www.gov.uk are designed to help small businesses plan their finances with trade volatility in mind.

7. Strategic pricing and customer communication: small enterprises, with their closer customer relationships, must manage price adjustments strategically, diplomatically, and quickly. When facing tariff-induced cost surges, they can consider incremental price increases, temporary surcharges, or redesigned product offerings to maintain profitability. It’s imperative to communicate transparently with customers about why prices are changing – for instance, highlighting that a tariff is an external factor increasing costs. In B2B contexts, small suppliers might negotiate to split the tariff cost with their clients or adjust contract terms (e.g., shorter contracts with price review clauses) until uncertainty passes.

To be continued in Part 4.