US tariffs: how will they affect UK small businesses?

Emily Coltman FCA
Chief Accountant

In the wake of recent announcements about increased tariffs imposed by the USA, FreeAgent chief accountant Emily Coltman FCA explains what this might mean for UK-based small businesses.

What are tariffs?

Let’s first address what tariffs are. 

They’re levies governments may impose on certain goods to protect the domestic market. For instance, if the British government wanted to encourage the British people to buy wool from sheep raised in the UK, they might impose a tariff on wool imported from New Zealand, in order to make it more expensive compared to British wool.

A tariff is usually set as a percentage of the value of the goods in question.

Tariffs don’t tend to affect supplies of services directly; they would not be levied on supplies of services as they are on goods.

The key difference between tariffs, on the one hand, and VAT or duties, on the other, is that VAT and duties are typically applied to goods regardless of which country they come from. For instance, both English and French wine would be subject to alcohol duty. If the French wine were also subject to import duty then this would actually be a tariff by another name!

Also, unlike VAT, it’s not possible to reclaim tariffs, so they do represent a new cost.

How could higher tariffs imposed by the USA affect your business?

The global tariff situation is currently in flux, but this is what the tariffs announced by the USA could mean for you.

If you sell goods to customers in the USA

The importer of your goods will have to pay tariffs on those goods to the US national customs authority. That means your goods will effectively become more expensive for them to buy.  So if you’re selling goods to customers in the USA and don’t think your customers will pay more for the same goods, you’ll have to absorb the costs yourself.

For example, if you sold a product previously for £100, that will now attract a 10% tariff so your importer / customer will have to pay £110 for it (if you don’t change your price). If you opt to keep the sale price of the product as £100, then that will now represent a sale for you worth only £90.91, with the tariff being £9.09. This represents a shrinking of your profit margin (because you have the same value of costs but a lower value of sales).

If you buy goods from suppliers in the USA

In the wake of tariffs being imposed, it could prove harder to source goods or raw materials from US suppliers. This is because other US traders may need more of those goods for their own manufacturing processes.

Suppose the US previously imported a lot of French-made cheese. Tariffs could mean more US artisan cheese-makers are able to sell their products locally, because US-made cheese would be cheaper than French cheese. That, in turn, would mean less US milk available because more of it would be needed to make local cheese - so if a British producer of American-style milkshakes was going the whole hog (or should that be the whole cow?) by importing US milk to make those with, then there would be less US milk available for them to buy.

The same could be true if you buy products from a third country that sources part of its product from the USA.

Also, prices of supplies from the US could go up if your suppliers price their goods in dollars, if predicted currency fluctuations end up meaning that a pound is worth fewer dollars.

If your competitors sell to the US

Your competitors may decide that they won’t sell as much, or anything, to the US going forward, which could mean that more of their products will be available for British customers to buy.

This could mean your customers buying from them instead of from you.

In conclusion…

The new tariffs could mean significant challenges for British businesses, so if you have any concerns about financing or funding, it’s vital you speak to your accountant for help and for direction to potential other sources of assistance.