The US administration’s announcement of a 90-day pause in relation to the trade tariffs was cautiously welcomed across the globe with some notable exceptions. However, the tariffs are expected to significantly impact global economies and trade dynamics. UK businesses are now evaluating the situation, considering the implications, and exploring potential mitigation strategies. It is important to remember that this is a highly fluid situation that may change and evolve in the coming weeks and months.
Where are we now?
Relatively speaking, the UK’s overall trade position has been received more favourably than others, with the baseline flat rate of 10% imposed from 5th April, although this will still create significant impacts in certain sectors. Other countries are potentially subject to much steeper rises which will come back into force when the pause expires. Here is the current position:
- An across-the-board flat rate of 10% on most countries unless tariffs already exist,
- A 25% tariff on all goods from Mexico and Canada,
- A 25% tariff on all aluminium and steel exported to the US,
- A 25% tariff on all cars and car parts exported to the US,
- Tariffs of 145% on all exports from China, with some exclusions for electronics.
With the UK a significant exporter of cars to the US, this will create obvious challenges for our automotive industry although positive signalling from the US administration leaves room for negotiations.
For UK business as a whole, there may in fact be a slight sense of ‘déjà vu’ given the experience of Brexit and the trading and supply chain impacts that entailed. This may stand those UK businesses who have retained the learnings in good stead. Arguably, we have a head start here compared to businesses in other countries for whom these upheavals are completely new territory.
Big picture implications
In terms of the high-level impacts, here's what UK business leaders need to know:
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Impact on UK exports
Higher US prices could reduce demand for UK goods like cars, pharmaceuticals, medical devices and machinery. UK exporters are likely to face increased costs due to tariffs extended to UK products linked to international supply chains.
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Supply chain challenges
UK businesses relying on materials from China, Mexico, and Canada as well as those other countries with higher rates imposed could see cost increases, affecting manufacturing and demand for US goods.
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Currency & investment
A stronger US dollar could also weaken the pound and global currencies, impacting import costs and export competitiveness. UK firms with US operations could also face revenue and investment uncertainties. Inflation is likely to creep up as a consequence of the global trade position.
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Strategic implications
The UK will now need to navigate complex trade dynamics, balancing relations with the US, EU, and China as well as other international trade partners.
Practical steps for UK businesses
The evolving US tariff landscape demands proactive measures. Here's how UK business leaders and their teams can prepare for change:
1. Stay informed:
- Continuously monitor US trade policy changes and announcements. The position is likely to remain fluid with further announcements over the next few weeks as the situation plays out and countries respond in kind.
- Businesses can start to think about what impact this is likely to have on their supply chains. Trade data will be a useful resource to help understand potential tariff impacts on specific products and materials.
2. Review and adapt your supply chain:
- Assess your supply chain's vulnerability to tariff increases. Do an initial impact analysis and start to model the effect of the tariff on costs and demand drivers.
- Consider whether your business should be diversifying by sourcing with countries that have more favourable tariff treatment.
- Increase supply chain visibility to identify potential disruptions. As a top priority, you should apply a lens across the whole of your supply chain including where your main producers or manufacturers could be impacted themselves.
3. Renegotiate contracts:
- Review existing contracts with suppliers and incorporate clauses addressing tariff fluctuations.
- Consider force majeure clauses for significant tariff changes, allowing for renegotiation or termination.
- Explore shifting tariff responsibility to suppliers through modified terms of sale.
4. Explore tariff mitigation strategies:
- Tariff engineering: Analyse product classifications and explore modifications to potentially qualify for lower tariff rates.
- Free trade agreements (FTAs): Leverage existing US FTAs to benefit from reduced or zero-rated tariffs. Ensure compliance with FTA rules of origin.
- Foreign trade zones (FTZs): Consider utilizing FTZs for potential duty deferral, reduction, and increased supply chain efficiency.
- Duty drawback: Investigate the possibility of reclaiming duties paid on imported goods that are subsequently exported.
5. Optimise customs valuation and compliance:
- Review customs valuation methods to ensure accurate declarations and exclude non-dutiable costs.
- Implement a duty reconciliation program to identify overpayments and potential refunds.
- Engage trade compliance experts to navigate complex regulations and ensure accurate documentation.
Take action now
By taking proactive steps, UK businesses can start to mitigate risks, maintain compliance, and adapt to the changing US and global trade environment. Whether a large plc, a privately-owned business, a start-up, or a family-run enterprise, there will be a multitude of issues to work through. Navigating the complexities of US trade tariffs will not be easy and does require specialised knowledge. Partnering with trade experts can help you mitigate risks, ensure compliance, and identify cost-saving opportunities.
Please contact tim.sarson@kpmg.co.uk or jeeven.pawar@kpmg.co.uk if you would like to discuss further.
