UK tariff threats put small businesses on alert
UK small businesses have already taken steps to reduce trading with the US amid a temporary reprieve from tariffs, a leading industry group has suggested.
The Labour government is yet to rule out retaliatory tariffs on US goods given President Trump’s trade war could hit UK exporters in under three months.
But new research indicates that small businesses are already suffering the knock-on effects of Trump’s trade war and could struggle more if the UK decides to retaliate against the US.
The Federation of Small Businesses (FSB) said that around 38 per cent of small exporters have seen demand among US clients drop while more than one in ten have had to cut sales.
FSB policy chair Tina McKenzie said the figures showed how the trade war would “wreck” small businesses’ hopes of expanding overseas.
“Tariffs might sound technical, but their impact is painfully real. They raise costs, squeeze margins, and make our goods less competitive,” McKenzie said.
“For small businesses already navigating tough climates, it’s one blow too many.”
The survey of nearly 250 firms highlighted the sense of fear spread throughout the UK economy.
One in three small businesses said they would slash trade activity if Prime Minister Keir Starmer responded with retaliatory tariffs.
More than half of businesses would raise prices of products to cover higher costs, in signs consumers would also face the consequences of higher taxes on imports.
Business secretary Jonathan Reynolds’ four-week consultation with businesses on whether the UK should retaliate has now ended.
The UK government is not expected to unveil retaliatory tariffs after several leading businesses raised concern about what it could mean for their costs.
Chancellor Reeves is leading negotiations with the US to secure a trade deal, which could include a reduction in US car import tariffs and looser rules on food quality standards.
Labour ministers have eased expectations of an early breakthrough as Reeves recently said a deal would not be rushed.
The FSB is the latest group to warn the government against raising trade barriers with the US despite tensions.
Governor Andrew Bailey last week said retaliation would lead to higher inflation, prompting suggestions it could force the Bank of England to alter its “gradual and careful” rate-cutting approach.
“Retaliation would arguably push inflation up, redirection of trade would be disinflationary,” he said.
Economists have widely agreed that the global trade war would have hit UK growth regardless of whether a trade deal can be agreed.
The Bank of England will diagnose the scale of the hit of US tariffs on the UK economy later this week.