BFS’s Trading Places report, which surveyed over 500 UK SMEs that trade overseas, found over half (55%) see tariffs as a key economic challenge today – up 15% compared to last year. Furthermore, nearly half (47%) expect tariff uncertainty to reduce their overseas trading volumes by the end of this year, rising to 51% for those for which the US is their most important export market.

Jonathan Andrew, Global CEO at Bibby Financial Services, says: “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.”

Data uncovers the devastating financial implications that the new tariffs regime could have for UK importers and exporters, with the total cost of levies estimated to reach an average of nearly £17,000 per business. This adds to the ongoing cost burden facing these businesses, many of which continue to struggle with a higher cost environment amid elevated interest rates and persisting inflation. According to the Confederation of British Industry, these challenges are heralding the weakest outlook for UK private sector businesses since 2022.

Although the recent trade deal signed between the UK and the US offers hope, it may come too late: 20% of SMEs are turning their back on the US by reducing the number of US customers they work with, while almost six in 10 (59%) are switching to making FX payments in euros and sterling to mitigate the volatility of the dollar.

Tariff uncertainty and trading volatility are forcing SMEs to reconsider which international markets they prioritise, with many considering onshoring, nearshoring or even “friendshoring” – where supply chains are focused on countries regarded as political and economic allies, or where Free Trade Agreements are in place.

Just under two thirds (64%) plan to seek trading partnerships in new markets in the next 12 months – up more than 10 percentage points from 2024. And 36 percent say they are expanding partnerships to mitigate the risks presented by significant changes to trade policy, tariffs, or the geopolitical situation.

Many are also closely weighing up which of the world’s two biggest economies will dominate in the future – the USA or China. China leads the way as the top new country being targeted for exports in the next 12 months at 13 percent, nearly doubling the tally from last year (7%) and indicating a significant surge in interest among UK businesses to enter or trade with the Chinese market.

However, SMEs are under no illusion that forging new relationships will be easy. Over half (56%) believe that Brexit has made their business less competitive in the global marketplace, resulting in over three in five (66%) saying they would vote to remain in the EU if they had the chance to vote on the Brexit referendum again – a 13-percentage point rise in Remainers since last year.

Jonathan Andrew continues: “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 by assessing how tariff agreements could impact their operations, as well as taking a proactive role in managing currency risk. It’s 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.”

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