It’s bad, but just how bad? That’s the question a great many U.K. startups and small businesses are asking themselves as the Trump administration’s newly minted tariff regime heaves into view.
Outside of the steel and automotive industries, the U.K. has got off relatively lightly with a tariff of 10% on goods compared with the 20% imposed on the European Union. Nevertheless, as I sit down to write this piece, the FTSE-100 index is down nearly 4.0 and the Prime Minister is announcing emergency measures to protect the domestic car industry.
Amid the panic, small and medium-sized businesses are trying to work out what the sudden change in the world trading order means for them. On the face of it, many will not be affected. Services companies don’t fall into the Tariff net – good news for software-focused startups – and for goods shipped directly to consumers from the U.K. to the U.S, there is a threshold at which taxes are applied. As things stand, relatively low-value packages are not subject to charges.
What Britain’s small businesses are facing, though, is a huge amount of very unwelcome uncertainty, which could affect their ability to trade with the U.S. even if the tariffs themselves are not seen as too onerous.
A Limited Impact?
U.K. companies exported £182.6 billion in goods and services to the U.S. in the 12 months leading up to the end of Q3, 2024, according to government figures, so at a macro level, any increase in import charges has the potential to do some real economic damage.
However, according to Dr Joseba Martinez of London Business School’s Economics Faculty, the overall impact on SMEs is likely to be limited. As he sees it, distance tends to be a deterrent to export activity, and the U.S. market is a long way away. Another factor to consider is that very small companies find exporting too difficult and, thus, concentrate on their domestic markets.
“Putting these two insights together, the direct effect on UK SMEs is likely very small, except perhaps for some super-specialized firms, and those firms can probably pass on the 10% tariff,” says Martinez.
That’s not to say there won’t be some impact, even on companies that trade only in their home markets. As Martinez acknowledges, many will be suppliers to big exporters such as Rolls-Royce or Jaguar Land Rover, so there may well be a lot of companies facing an indirect hit.
And of course, the big picture can obscure the experience of businesses that have made a point of exporting their products to the American market.
Tariff Thresholds
A case in point is Peter Christian, a menswear brand that sells directly to consumers. As Account Manager Robson Ternoth explains, the U.S. market now accounts for 35% of the company’s total turnover.
As things stand, tariffs won’t have a direct impact on the business as an $800 “de minimis” rule allows most packages to make the Atlantic crossing without charges kicking in. But there is, nevertheless, no one knows if that situation will sustain.
“The key issue now is the threat to the de minimis threshold. The exemption is due to be removed for China and Hong Kong on 2nd May, and US officials have stated they will extend this to other tariffed countries once the infrastructure is in place,” says Ternoth. “Even if the UK secures a free trade agreement, many of our garments are manufactured in countries, such as Spain, Italy, Bangladesh, etc, meaning they would still be subject to higher duties under Rules of Origin.”
Added to that is a change in sentiment. Ternoth says there have been signs of consumer hesitancy following the start of Donald Trump’s second term. Nevertheless, the company plans to grow U.S. orders to 50% of turnover. Ternoth hopes the U.K. government will negotiate the continuation of the de minimis rule.
Uncertainty is also facing service sector businesses. Attila Kecsmar is co-founder and CEO of Antavo, an AI-driven loyalty program platform. His company has been making inroads into a U.S. market that now accounts for 20% of new business. “Our global expansion efforts will continue, with a particular focus on enhancing our footprint in the U.S.,” he says.
As a software company, Antavo is not affected by the import charges but Kecsmar sees hazards in the road ahead. “The real issue for the software sector lies in the pace of change and the chaos emerging from unpredictable and seemingly fast-and-loose tariff policies.”
In addition, if the tariffs affect the US economy, customers there could be put under pressure.
Benefits For Europe
If U.S. technology companies face higher costs for items such as microprocessors, there could be a benefit for rivals elsewhere in Britain, Europe and elsewhere.
Adit Abhyankar is CEO of Breakthrough, a Madrid-based AI sales platform. As the cost of components going into the U.S. rises, he says activities such as model training could move offshore.
“This creates two secondary effects,” he argues. “Comparatively, it becomes cheaper for any AI company to build models using hardware outside the US, so the US risks losing its AI advantage. Why would they want to build a team in the US, if they have to do all the research on infrastructure that is offshore? And Once data is moved outside the US, what does that mean for data security, privacy and complying with US legislation in general?”
There is a bigger picture here. If British and European companies can access low tariff components or raw materials, then any disadvantage imposed by U.S. tariffs might be offset by relatively cheapers costs elsewhere in the value chain.
Of course, anything could change. The tariffs could be removed, delayed or increased.There could also be a global recession. That’s why uncertainty remains the biggest problem facing U.K. and European businesses.
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