With the US imposing increased tariffs on UK-US trade, business finance experts at Funding Circle investigate the impact that this could have on UK SMEs

A large proportion of small UK exporters sell into the US market. While these tariffs are expected to raise the cost of imported goods and materials from the US, there are a variety of ways in which UK-based SMEs could be impacted by US tariffs.

Increased costs: tariffs on imported goods and materials can significantly increase costs for SMEs, particularly those dependent on overseas suppliers. Without the buying power of larger chains, SMEs have less ability to negotiate better terms, leaving them more exposed to price hikes. For retailers importing products like clothing, electronics or home goods, tariffs raise inventory costs, forcing a difficult choice: either increase retail prices and risk losing price-sensitive customers or absorb the costs and shrink already tight profit margins. In a competitive market, where loyalty is often driven by price, SMEs are at greater risk of losing customers to bigger brands or discount retailers.

Supply chain disruption: SMEs typically operate with less diversified supply chains compared to large corporations, making them more vulnerable to disruption. Tariffs can force SMEs to have to urgently find alternative suppliers, leading to delays, higher buying costs, and operational uncertainty. Retailers reliant on overseas sourcing may face stock shortages as suppliers adjust to new regulations or reroute supply chains to avoid tariff impacts. These risks are especially damaging during critical trading periods like Black Friday or Christmas. Tariffs on US imports, in particular, can further inflate supply chain costs and disrupt existing supply relationships, leaving SMEs with little choice but to source alternatives, often at a premium.

Reduced competitiveness: higher production costs driven by tariffs can make SME products less competitive, particularly against rivals sourcing domestically or from un-tariffed markets. While some retailers may pivot to local or tariff-free suppliers, doing so often means facing higher base prices or lengthy delays in finding suitable alternatives.

For exporters, increased US tariffs on UK goods make British-made products more expensive for American consumers; this will negatively impact the demand for these products and threaten SMEs’ growth ambitions in the US market. Even well-established UK businesses could struggle to compete if suppliers from tariff-exempt countries are able to offer lower prices to US buyers.

Cash flow pressure: SMEs often operate under tighter financial margins and smaller cash reserves, making them more vulnerable to unexpected cost increases. Tariffs on US-made components or machinery, critical for many UK manufacturers, can simultaneously drive up expenses and suppress sales volumes. For SMEs already balancing slim margins, this dual pressure can strain cash flow, restrict investment in growth, disrupt day-to-day operations, and ultimately threaten long-term business sustainability. Many businesses can expect these pressures to continue and will need to seek additional support to help mitigate cash flow issues.

How UK SMEs can stay resilient
Market diversification
Expand into tariff-free or lower-tariff markets (e.g. EU, Canada, Asia-Pacific) to reduce over-reliance on the US and spread risk across regions.

Supply chain resilience
Audit and diversify supply chains to find alternative suppliers or components from tariff-free regions, reducing exposure to cost hikes. Review where your goods are from and see if you can source materials from alternative countries with more favourable trade deals. Perhaps look at local suppliers to avoid tariff impacts completely.

Local partnerships or distribution
Explore partnerships with US-based distributors or manufacturers to shift part of the production process closer to the target market and potentially sidestep tariffs.

Flexible pricing models
With ongoing changes in product costs as businesses try to absorb the impact of the tariffs globally, it’s worth considering an introduction of dynamic pricing strategies or product bundling in the US to protect perceived value and absorb tariff costs creatively. You might also explore adding contract clauses that allow for shared cost adjustments if tariffs drive prices up.

Customer communication
It’s important that you are clear and transparent with customers about tariff-driven price changes. By communicating these changes, you help reinforce brand value. It’s important that while communicating these changes, you look at other important product benefits such as ethical sourcing or product quality to maintain loyalty.

While the tariffs are expected to lead to higher prices and put pressure on cashflows, it’s essential that SMEs strengthen their financial safety net. Having a business credit card can give SMEs the support they need if unexpected costs or higher expenses arise. Business credit cards can help smooth out irregular income and expenses. That often means you get a buffer when waiting on customer payments.

Response
Joseph Sopher, director of Joe & Seph’s Popcorn has seen the impact of the US tariffs firsthand and comments on how they have responded to the changes:
“The mere spectre of tariffs had already been affecting our business. In 2024, we made £8 million in sales, of which two to three per cent came from the US, so it is not huge, but the US is the biggest popcorn market in the world, so we had planned that a lot of our growth would come from there. As a consequence, we are now planning to focus on growing its exports to the Middle East and Asia.

“However, the 10 per cent tariff was not as bad as we were expecting, and US importers already have to pay a 5.8 per cent tariff on Joe & Seph’s goods when they reach American ports. So essentially what’s happened is we’re going to go from 5.8 per cent to 10 per cent as opposed to zero from 10 per cent. It is also lower than the new US tariffs levied on other countries, such as the 20 per cent tax on the European Union. Ironically, it could be a good thing. These retailers who would have sourced from Europe might now say; ‘Actually, we’ll buy more from the UK’.”

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