Rising uncertainty brought about by President Donald Trump’s introduction of trade tariffs on US trading partners has brought the need for resilient export strategies into even sharper focus.

On 8 May, the UK government announced a trade deal with the US that would see US tariffs on automotives immediately cut from 27.5% to 10%; steel and aluminium tariffs reduced to zero; and promised greater access for British farmers to the US market.

Despite progress on new trade agreements, tariffs have continued to rattle the world economy. But with careful planning and supply chain management, businesses could protect themselves against some of the worst effects.

Countries often impose tariffs in retaliation for trade policies they consider unfair. These could be disputes involving trade imbalances – when one country has a trade deficit with the other – intellectual property conflicts, or political and national security concerns.

A situation of escalating tariffs can result in a trade war between two countries or trading blocs and is often triggered by a protectionist policy by one party. By imposing tariffs – import taxes – on specific goods imported from a trading partner, a country can effectively increase the price of those goods in its market.

The importer is legally required to pay tariffs on goods at the point of entry, and the cost increase will almost always be passed on to wholesale buyers, and ultimately consumers. This can reduce demand for the imported product and increase demand for equivalent goods not impacted by the tariff.

If the affected trading partner retaliates with its own tariffs or other restrictions and there is a subsequent tit-for-tat escalation by each country, the result is a trade war.

Individual businesses can be impacted by this in several ways:

• Increased costs due to higher tariffs or duties
• Disruption to supply chain
• Reduced demand for products in affected markets
• Regulatory uncertainty
• Currency volatility

While large corporations may have the resources to weather the uncertainties of trade wars, small and medium-sized enterprises (SMEs) need a resilient strategy to navigate them. It’s important for SMEs to understand the dynamics of tariffs and trade wars to make more informed decisions and prepare for them.

Reviewing your current export strategy is the first step in ensuring that it is appropriate for current market conditions. An export strategy that was conceived before market changes occurred might prove to be inefficient or costly.

Market selection: Are you choosing export destinations based on demand, regulatory stability, or ease of doing business, and have you considered the impact of increased tariffs in those markets?

Pricing strategy: Review your current pricing structure against your competitors’ and plan for how you could remain competitive if a tariff was imposed on your goods and not theirs.

Logistics and compliance: Are your supply chain and customs procedures flexible enough to adapt quickly to regulatory changes? Develop a contingency plan to train staff and make supply chain adjustments if new procedures become necessary.

Export journey: Map your export journey and identify points where a trade war or tariffs could cause disruption. A detailed assessment now could help you respond quickly if tensions escalate in future.

Check export concentration: A crucial element in building resilience is knowing where your business is most exposed. For instance, if your exports are heavily reliant on one or two countries, there may be a higher risk to your business if a trade war were to occur with one of those territories.

Examine trade agreements: Check if your exports benefit from preferential trade agreements that might change or expire. Would your products or services be competitive without the preferential treatment they currently receive, and could you adjust pricing to remain viable?

Evaluate your customer base: Ask yourself how sensitive your customer base is to price increases caused by tariffs. If your exports are very price-sensitive, they may be at higher risk.

Conduct an audit: A market dependency audit could help you assess how much of your revenue comes from higher-risk markets. Tools like the Department for Business and Trade's (DBT’s) Exporting Country Guides can help judge market stability and identify risk factors.

Diversifying export markets is a way of reducing the risk of tariff and trade war impacts. Shipping goods to a small group of countries can leave the exporter exposed to trade tensions in those countries, while diversification could spread risk across different regions.

Consider secondary markets: Markets with fewer regulatory barriers, stable economies and similar demand profiles to those you are already exporting to offers exporters new opportunities, with little or no disruption to workflows.

Use trade shows: Engage with new potential buyers in untapped markets by attending trade shows and virtual expos. Industry bodies, and the DBT can help you find events relevant to your business.

Partner with local distributors: Local alliances help you navigate unfamiliar new markets more effectively. Check if the distributors you are already working with operate in other territories.

Look further afield: Regions like Asia, Eastern Europe, and parts of Africa have growing economies that could offer new opportunities and a high demand for UK-made goods. 

Supply chains are often the first casualties of trade wars and other trade disruptions, but with careful management, you could improve your supply chain resilience:

1. Diversify your suppliers

Aim to build relationships with at least two suppliers for key components, ideally located in different countries or regions. Nearshoring – sourcing materials from countries closer to the UK – could reduce the risk of tariffs and lower transportation costs.

2. Source goods locally

Consider sourcing raw goods and components domestically, especially for critical materials. Locally manufactured components might come with higher costs, but this approach can improve the reliability of supply and reduces risks associated with trade disruptions.

3. Review contracts

Make sure your International Commercial Terms (Incoterms) and supplier contracts are clear on responsibilities, especially relating to new tariffs. The DBT can help you choose the best Incoterms for your business.

4. Consider flexible payment terms

Extended payment terms could make your products more attractive to buyers who may have cash flow constraints. This could increase sales volumes as buyers are more likely to purchase from you if they have more time to pay. By offering flexible payment options, you can build stronger relationships with your customers.

Strong relationships with overseas partners, distributors, and buyers also builds trust and encourages them to work with you through challenges.

Check out our Future Fit insights for more tips on supply chain management.

Trade tensions can create short term uncertainty. Scenario planning allows you to develop proactive strategies for different potential outcomes and could help your business respond quicker.

To build an effective scenario plan for exporting, you should first identify key variables, such as:

• New or increased tariffs applied to your product
• Changing laws or regulations in your export market
• Currency fluctuations
• Supply chain disruptions

Create several degrees of disruption, from no disruption to severe disruption, then develop response strategies for each level. Consider how you could shift export markets, adjust pricing, or change suppliers to mitigate the changes.

Finally, test your plan by running simulations or tabletop exercises to assess your readiness. Use the information to build contingencies into your export strategy.

Trade wars and tariffs can bring unforeseen costs and uncertainty to cash flow forecasts. Having a solid financial strategy can help protect your business against the impacts.

1. Government grants and funding

Investigate the financial support available from UK government bodies such as UK Export Finance (UKEF), which offers insurance, loans, and guarantees to exporters.

2. Banking support

Banks can help businesses manage risk and prepare for periods of trade uncertainty. Visit our Trade Finance hub to explore how we might be able to support your business.

3. Currency hedging

Fluctuating exchange rates can affect profit margins. Consider using forward contracts or options to lock in favourable exchange rates, especially if you have significant foreign currency exposure.

4. Trade credit insurance

Protect against the risk of overseas buyers defaulting due to economic changes. Trade credit insurance could also make it easier to secure trade financing from banks.

Digital tools can help businesses stay ahead of trade-related disruptions and identify new opportunities.

Trade databases: Resources like Trade Map, the World Trade Organisation’s Tariff and Trade database, and the UN Comtrade Database offer valuable information about trade flows and current tariff rates.

Market analysis tools: Use services such as GREAT.gov.uk to evaluate new export markets.

Logistics tracking: Modern supply chain tracking software gives real-time tracking and alerts for delays or disruptions.

Analytics: Investing in analytics tools can help measure performance of exports in new markets and monitor across trading locations.

By planning ahead and making informed decisions, businesses build resilient export strategies capable of withstanding trade uncertainty. You can find more trade insights that could help your business here.