With the news that the United States, which imports around $3.35 trillion (£2.67 trillion) in goods, may soon impose additional tariffs on many items imported from overseas, many businesses seeking to trade in the international market are having to proceed with caution.
The situation is particularly precarious for SMEs, which traditionally lack the cash reserves, economic power and access to economies of scale available to large multinationals.
However, the first step to overcoming this uncertainty is understanding what tariffs mean for businesses trading internationally – and how to overcome these challenges.
What do tariffs mean for SMEs?
Tariffs can significantly impact SMEs looking to trade internationally in terms of:
- Increased costs – Tariffs add to the cost of importing goods for the consumer, so many exporting companies choose to absorb this cost to remain competitive, but SMEs may struggle to do this without significant liquid cash reserves.
- Reduced profit margins – If SMEs choose to absorb the tariff costs to maintain competitive pricing, their profit margins shrink, which can put a strain on SMEs’ budgets.
- Supply chain issues – Other elements of the supply chain may the impacted by tariffs, with manufacturing or shipping potentially becoming more expensive.
- Compliance – Tariffs often come with additional administrative requirements, such as detailed customs documentation and tariff classification. For SMEs, this can mean dedicating more resources to compliance.
Tariffs can act as a barrier to entry for SMEs in international markets, particularly where major importers impose high tariffs on foreign goods.
However, tariffs do not have to spell the end of international expansion for SMEs. With the right financial strategies in place, ambitious businesses can trade internationally with confidence.
Is this the right time to start international trading?
We know that many SMEs are concerned about putting their international trade plans into action with the potential for increasing tariffs in the world’s largest import market, in addition to existing tariffs in other substantial importer nations.
However, the simple answer is that your business’s capacity to absorb the impact of tariffs will be the deciding factor as to whether you are able to trade overseas, so each business will be affected differently.
This will depend on a number of factors, including your cash flow and cash reserves, as well as projected return on investment (ROI) from overseas trading – as these will determine whether you can afford to weather the cost of tariffs yourself, or whether you must pass them on to your customers.
You may wish to seek advice on:
- Understanding and leveraging free trade agreements
- Assessing your supply chain and shipping arrangements
- Reshoring production
- Managing your cash flow and prioritisng overseas investments
These can help you to overcome the challenges presented to SMEs by tariffs and make trading overseas a more cost-effective venture for your business.
For advice on managing your finances when trading internationally, please contact our team.