Trump’s Tariffs: What does this mean for UK SME’s?

My, how Trump’s tariffs have taken up most international media headlines. Whilst Trump is good at selling papers, whether or not he is good at handling trade negotiations is debateable, and depends on which side of the Atlantic you speak to.  Added to this, we have the fun of the US courts threatening to change the rules again!

Whilst my American friends and family have their own views on the tariffs placed on most of the world, I have seen firsthand the trouble they have caused, particularly in the UK.

If you are a SME business, particularly in the manufacturing sector, you are probably very nervous watching all the things unfold. There have been many headlines on the UK-US Tariff Agreement, particularly an article here by the BBC earlier this month, but we have summarised all the updates and how this will affect you:

Key Points:

• The UK and US have reached a limited agreement reducing tariffs on specific goods, notably benefiting sectors like automotive and steel. However, the deal is not a comprehensive free trade agreement and leaves many UK exports still subject to tariffs.

• Car Tariffs: The US has reduced import taxes on UK cars from 25% to 10% for up to 100,000 vehicles annually. Exports beyond this quota will face a 27.5% tariff. This measure aims to support UK car manufacturers, such as Jaguar Land Rover, which exports a significant portion of its vehicles to the US.
• Steel and Aluminium: The 25% tariffs on UK steel and aluminium imports to the US have been removed. However, a quota system has been introduced, and details regarding the volume limits and applicability to derivative products remain unclear.
• Limited Scope: Despite these reductions, the US’s blanket 10% tariff on most UK goods remains in place, affecting a wide range of exports. The agreement does not constitute a full trade deal and lacks the legal enforceability of such an agreement.

Positive Impacts for Some SMEs:

1. Boost for Auto Sector Suppliers:
   • SMEs supplying parts or services to larger UK car manufacturers (like Jaguar Land Rover) may benefit indirectly from reduced US car import tariffs (25% down to 10% for 100,000 vehicles).
   • Increased competitiveness in the US market could lead to higher demand and production, trickling down to UK-based SMEs in the supply chain.
2. Relief for Steel and Aluminium SMEs:
   • The removal of 25% tariffs on UK steel and aluminium will help SMEs in those sectors or using those materials, improving export margins and making UK goods more price-competitive in the US.

3. Boost for UK Food Production

1. • UK farmers gain new duty-free quotas for high-quality beef, dairy, and lamb exports to the US, providing opportunities for food production into the US food market.

Ongoing Challenges:

1. Limited Scope – Most SMEs Still Affected:
   • The deal is not comprehensive. A blanket 10% US tariff still applies to most UK exports, which affects a broad range of SME products from food to textiles to consumer goods.
   • For many SMEs, this means the cost and complexity of exporting to the US remain unchanged.
2. Reduced US Market Access:
   • SMEs exporting to the US may lose customers or contracts if US buyers shift to cheaper, tariff-free alternatives.
   • Tariffs also create pricing uncertainty, which can scare off potential US distributors or partners.
3. Quota Uncertainty:
   • Even in sectors where tariffs were eased (cars, steel, aluminium), quotas apply. Once exceeded, punitive tariffs kick back in.
   • SMEs may struggle to forecast whether their goods fall within quota limits, complicating planning and pricing.
4. Administrative Burden:
   • SMEs, with typically fewer legal and compliance resources, may find it difficult to navigate the new trade rules and documentation requirements – especially where the agreement lacks clarity or enforcement mechanisms.

Strategic Recommendations for SMEs:

• Contract Review and Renegotiation: SMEs should assess existing contracts with US partners to identify opportunities for renegotiation, especially concerning pricing and delivery terms.
• Supply Chain Diversification: Exploring alternative suppliers and markets can mitigate risks associated with tariff-induced cost increases.
• Enhanced Compliance Practices: Investing in robust customs documentation and compliance procedures can reduce the risk of delays and fines.
• Engagement with Support Programs: Leveraging government initiatives like UKEF can provide financial relief and guidance during this transitional period

Conclusion:

Whilst the deal offers narrow benefits for UK forms in specific sectors, most will see limited direct relief. Without a broader UK-US free trade agreement, high tariffs and administrative hurdles will continue to hinder smaller exporters trying to compete in the US market.

Polestar works with a lot of founder owned manufacturers, such as with recent sale of Semmco to the Swedish company HAKI Safety.

Whilst the US navigates chaos, at Polestar, we are observing international investors who are partnering with UK enterprises to build resilient, high-growth portfolios that provide stability and clarity across a politically unstable landscape.

Once the dust settles, this could be a great time to explore your options for raising funding or securing a valuable exit. If you want to get in touch about manufacturing related deals and values, please feel free to let us know and we gladly take you through the current state of play. In the meantime, keep a look out for our latest manufacturing sector valuation coming soon.