What do SMEs need to know about the US ‘trade war’?

You’ve probably seen the headlines. Global stock markets have plummeted following escalating trade tensions between the US and, well, the rest of the world. This morning, the UK’s main stock market, the FTSE 100, dropped to a one-year low.

It’s a confusing situation, and investors, businesses, and individuals with pensions or personal shares are naturally feeling anxious. Although UK SMEs don’t directly participate in the stock market, they will still face indirect effects. Business owners should take steps to protect their profit margins during this period of market volatility.

Below, we’ll explain the current market situation in simple terms, and offer some straightforward, actionable advice to help you weather the storm. 

Understanding the market meltdown and its causes

The FTSE 100 has taken a hit in recent days. The index, which measures the value of some of the UK’s biggest companies, has fallen by 6%. That means it’s the lowest it’s been since February 2024. 

Across the globe, there has been widespread market volatility, with Asian stocks plunging particularly dramatically. The main cause of the market chaos is US President Trump’s introduction of new trade tariffs on April 2, or what he called “Liberation Day”. 

Tariffs are taxes imposed by a government on imported goods. Last week, Trump raised US tariffs with the aim of ‘making America wealthy again’. Tariffs are charged to the companies bringing the goods into the US, and paid to the US government.

The UK will face the 10% baseline tariff, while those in the EU will be charged 20%. The highest rate of 50% will apply to 60 countries, including Malaysia, India, and Vietnam. The tariffs are set to take effect in days.

There will also be higher charges placed on specific imports, including 25% on steel, aluminium, and foreign-made cars, which UK manufacturers will need to pay.

The news has been met with widespread disdain. Generally, tariff increases are not a good thing for the global stock market, as they increase prices for consumers and reduce the flow of trade. They can also induce retaliatory tariffs, further destabilising the situation. 

China has already announced a 34% tariff on imports from the US, matching Trump’s rate for Chinese imports to the US.

The best next step would be “concrete action” said Kathleen Brooks, research director at XTB. “The best panacea for financial markets right now would be a pause or reversal from the US on its tariff programme,” she told The Guardian.

How market volatility impacts SMEs (and how to respond)

While SMEs may not be directly invested in the international stock market, they should still prepare for the fallout of the market’s volatility. 

Business owners need to consider how a fall in the stock market might impact their bottom line, especially following previously announced tax hikes. 

Stock market crashes are often followed by a recession, which can drastically reduce consumer confidence and limit spending. The cost of borrowing also becomes more expensive as interest rates rise, which could result in cash flow issues across the supply chain as more companies default on payments.

In addition, supply chain disruptions may become more common, especially if key suppliers are at the mercy of international markets or faced with increased costs. Fluctuations in currency can also affect the cost of imported goods and materials, which will further tighten business profit margins. 

And finally, larger organisations may be more likely to delay all-important investment decisions or pause new project kickoffs. This is bad news for smaller businesses and startups, whose success may be riding on successfully pitching to investors.

While this is a lot to digest, there are proactive steps SMEs can take to mitigate the potential risks. By reviewing and diversifying supply chains, firms can reduce the impact of delays or price hikes. It may be wise to look into alternative or local markets to identify new revenue streams that are less directly impacted by global stocks. 

As consumers will be holding onto their pennies during this time, it’s as important as ever to maintain strong customer relationships. Likewise, careful cash flow management during this time will be crucial to maintaining financial stability. 

Another tip is to explore flexible financing options, which may provide breathing room to both businesses and consumers.

Finally, if you’re feeling particularly under strain financially, we recommend seeking professional advice and staying informed on economic developments. This can help you make confident decisions and make the most of the help available. 

How is the Government responding?

As it stands, the UK has got off lightly from Trump’s global tariff tirade. Still, the planned changes will still bring knock-on effects across the entire global supply chain. How does the Government plan to respond? 

On Sunday, Prime Minister Sir Keir Starmer announced that he was prepared to use industrial policy to “shelter British business from the storm”. 

For one thing, it’s expected that announcements on public-sector investment into the UK industry and infrastructure will come sooner than planned. Entrepreneurs should stay tuned for that in the coming days and weeks ahead. 

But the global economic landscape remains uncertain, and the full impact of these trade tensions is yet to be seen. SMEs must remain vigilant, closely monitoring developments and adapting their strategies as needed.