The topic of trade wars is occupying the conversations of governments all over the world. This year has been marred by escalating trade tensions which have created increased trade friction between some of the world’s biggest economies. With no signs of easing, the situation is set to continue for the rest of the year. All too often the impact of what a trade war means for regular businesses and people is often overlooked in this discourse.
Donald Trump is ripping up the rule book, even with traditional allies of the U.S.A., and implementing higher tariffs on key imports such as steel and aluminium from markets including China, Canada, Mexico and the EU. Many of these markets have reacted in kind, delivering increased tariffs on American products ranging from peanut butter, bourbon, jeans and the famous, Harley Davidson.
The EU and China are trying to combat the current movement by setting up a working group to re-write global trade rules with the World Trade Organisation.
What this means for SMEs
Raw materials like steel and aluminium, as well as consumer goods, are subject to increasing tariffs. As tariffs increase, the more companies will have to pay to import and export goods across the globe, which will have a detrimental effect on SMEs which are the backbone and driver of developed – and developing – economies.
Supply chain management will no doubt take a hit as the impact of increased costs permeates. As products become more expensive, demand for such products could decrease or be sourced elsewhere, adding disruption and uncertainty to the already heavy lot of SMEs. With many SMEs operating throughout supply chains, these businesses could be find themselves in the eye of the trade wars storm.
What to do to avoid the impact of tariff increases
- Stay informed. SMEs need to be smart and keep informed about the tariff increases. Reviewing supply chains will play a big part in minimising the impact of tariffs. Working with all those involved in the process will ensure supply chains are planned and co-ordinated to combat increasing tariffs. It could bring businesses closer together, forming stronger relationships between everyone involved in the management of the supply chain.
- Speak to your supply chain. Talking to others within the supply chain will allow businesses to plan for potential risks from the U.S.A., China and other markets. Identifying key risks and whether a business is exposed will allow SMEs to plan how they will tackle the impact of increasing tariffs.
- Speak to your customers. With many SMEs potentially at the front of the queue to be hit by increase tariffs, it is important to be in regular contact with customers, keeping them updated on how they might be impacted by price rises. Quite simply, relationships have never been so important.
- Look at new options. Many industries are truly global and so it is very likely that there might be other markets, with better trading terms, that could be an option to find new suppliers. Maintaining quality standards in products should be front of mind though when looking elsewhere.
- Commit to regulator financial checks. Increased costs are inevitable, and therefore regular financial checks will allow SMEs to manage the situation more effectively. Planning is key and checking the need for extra funding in anticipation of increases will allow businesses to steer clear from the full force of the tariff war.
Of course, there is no hiding the fact that trade wars can have a big impact on a business and could well spring a few surprises. Being on top of everything is easier said than done, and so it is important that you can engage with your funding provider on how to manage these risks. Planning for possible surprises and helping to re-source suppliers are some examples of how they can help to mitigate the impact in trading terms on your working capital.