The Trump administration’s newly imposed tariffs on U.K. goods have created a storm of anxiety for many small businesses and startups across Britain. For many, the question isn’t just about the tariff rates themselves, but the overwhelming uncertainty about how these changes will impact their ability to trade with the U.S. market. The reality is, the tariffs themselves might not be the biggest concern — it’s the unpredictable and constantly shifting global trade landscape that’s causing the real fear.
A 10% Tariff – Just How Bad Is It for the UK?
The news that the U.K. will be hit with a 10% tariff on certain goods has sent waves of worry across many industries. While it’s a heavy blow, it’s not as severe as the 20% tariff that the European Union is facing. Still, the FTSE-100 index dropped nearly 4% in response, with many investors fearing the effects of escalating trade barriers. The Prime Minister has already announced emergency measures to safeguard the domestic car industry, yet it’s the small and medium-sized businesses (SMEs) that are feeling the most uncertain.
Interestingly, services companies aren’t directly affected by these tariffs. Software-based startups, for instance, have a bit of a reprieve. Goods that are shipped directly to U.S. consumers also have a threshold, with packages under $800 escaping charges under the de minimis rule. So, many businesses in the U.K. might not face an immediate hit to their bottom line.
But it’s the uncertainty surrounding these policies that has companies on edge. Will tariffs increase? Will the de minimis rule be revoked? These are questions that leave entrepreneurs wondering if they’ll even be able to navigate the U.S. market at all in the future.
The Impact of Tariffs on U.K. Businesses
Let’s break it down.
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U.K. exports to the U.S. total £182.6 billion, including both goods and services, according to the latest government data. This gives us a good idea of just how crucial the U.S. market is for many businesses.
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While the tariff impact is mild on paper, it could still lead to a real economic impact, especially for businesses relying heavily on U.S. trade.
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Dr. Joseba Martinez, an economist at the London Business School, argues that for most SMEs, the effect might be limited. According to Martinez, the sheer distance between the U.K. and U.S. discourages many businesses from exporting, especially small companies who often concentrate on their domestic markets.
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However, many small businesses act as suppliers to larger companies like Rolls-Royce and Jaguar Land Rover, meaning the ripple effects could be felt beyond the direct trade with the U.S.
Even for companies that primarily operate within the U.K., there’s still potential for indirect impacts due to their supply chain dependencies.
The “De Minimis” Rule: A Lifeline for Direct-to-Consumer Brands
Take Peter Christian, for example. This menswear brand sells directly to U.S. consumers, and as of now, their goods cross the Atlantic without tariffs, thanks to the $800 de minimis rule. This rule means most small packages — typically of lower value — aren’t subject to import taxes. Currently, 35% of Peter Christian’s total revenue comes from the U.S. market.
But this is where the real issue lies. The de minimis threshold is under threat. In May 2024, U.S. authorities will end this exemption for goods from China and Hong Kong, and they’ve hinted at extending this to other countries subject to tariffs. For Peter Christian, this would mean that even if the U.K. secures a trade agreement, goods manufactured in countries like Spain, Italy, or Bangladesh may still face higher duties.
Robson Ternoth, Account Manager at Peter Christian, explained:
“The key issue is the threat to the de minimis threshold. We’re uncertain if it will remain in place, and that uncertainty is one of the biggest problems we face.”
Without clarity on whether these rules will change or remain in place, the company’s future in the U.S. market remains precarious.
The Service Sector: Uncertainty in Software and Tech
While manufacturers like Peter Christian are worried about tariffs, it’s the tech companies that are feeling the ripple effects of policy unpredictability. Take Antavo, an AI-driven loyalty program platform founded by Attila Kecsmar. The company has been steadily expanding into the U.S. market, with 20% of its new business now coming from the States.
As a software company, Antavo isn’t directly impacted by import tariffs. However, Kecsmar warns that the uncertainty created by the U.S. tariff policies could harm their expansion plans. Unpredictable changes in trade policy could lead to economic instability in the U.S., putting pressure on their customers and dampening their ability to grow.
Kecsmar said:
“The real issue for the software sector lies in the pace of change and the chaos emerging from unpredictable tariff policies. If the tariffs affect the U.S. economy, it could put our customers under pressure, which will inevitably trickle down to us.”
So even if a company’s product isn’t directly taxed, the economic ripple effects of changing tariffs can be significant.
Could the U.S. Tariff Regime Benefit Europe?
Here’s a thought — if U.S. tech companies face higher costs for components like microprocessors, there could be an unintended benefit for companies outside the U.S. Adit Abhyankar, CEO of Breakthrough (an AI sales platform based in Madrid), highlights how this could work.
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Increased component costs could push AI companies to look outside the U.S. for cheaper alternatives.
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If companies decide to use offshore hardware for model training and other AI activities, it could lead to more companies being drawn to Europe and Britain for their tech infrastructure.
Abhyankar suggests:
“If the U.S. faces higher costs and more regulatory challenges, companies could shift their operations abroad. This creates opportunities for British and European companies to step in and take a more significant role.”
If European and British businesses can access components and raw materials at a lower cost, the impact of tariffs on the U.S. could actually be offset by the relatively lower costs available elsewhere in the value chain.
Conclusion: Navigating the Unknown
So, what’s the final takeaway? The tariffs themselves are not necessarily the worst part of this new regime for U.K. businesses. Instead, it’s the uncertainty that leaves businesses unable to make clear decisions about their future. With shifting trade policies, the risk of tariffs being removed, delayed, or increased, and the possibility of a global recession, the unpredictability of the situation is the true challenge for entrepreneurs.
The solution? Adaptability, flexibility, and clear communication with government officials will be key to navigating these turbulent times.
Photo credit: Forbes
