How Trump's presidency could affect UK SMEs

16 January 2017

Donald Trump will be sworn in as the 45th President of the US on Friday and his term in office could have economic repercussions for the global economy. Stephen Roper, Professor of Enterprise and Director of the Enterprise Research Centre, considers what it could mean for the UK's 5.2 million small and medium-sized companies.

Donald Trump’s reign as President should be of concern to the UK's small and medium-sized enterprises (SMEs) as his policies will have consequences for them, especially as the US is the UK’s biggest export destination.

During the campaign Trump made some remarks he may regret, but the general policy stance in terms of trade and industry is relatively clear: an emphasis on rebuilding manufacturing capacity in the US and potentially re-shoring jobs is likely to be important.

Unlike the Barack Obama years, Trump is likely to have the support of a Republic Congress and House of Representatives. So the checks and balances - or more accurately the brake - on policy change over the last few years is now gone. How will the new US administration influence the US market and the prospects for UK small firms?

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It is likely to mean an emphasis - particularly in public contracts - on US-based suppliers with fewer opportunities for UK or other foreign businesses - considerations of free trade and open markets seem secondary.

Both points are important here because the US is the largest export destination for UK manufacturers, worth £29.2 billon up to November in 2016. Indeed, the US is one of the few countries with which the UK runs a trade surplus with imports of £26.1 billion so far in 2016.

Small and medium-sized firms also do well in the US market. The proportion of SMEs exporting in the UK at 17 per cent is very similar to 18 per cent in Germany. And, among the European Union economies, the UK has the highest proportion of SMEs exporting to the US (43 per cent) followed by Italy (33 per cent) and the Netherlands (31 per cent).

Historically, the size of the US market, the common language and business practices have made the US a ‘friendly’ export market for UK firms. There have been issues of course. For some firms the litigious nature of the US makes it unattractive: product liability and concerns over IP predominate. For other firms, different standards and units of measurement and some of the logistic challenges are more important.

Looking forward, the situation seems likely to be more challenging. Already before the election some SME exporters were seeing an increased focus from both US public and private sector clients on US content. The aim being to ensure jobs and productivity were captured locally.

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This pressure is likely to intensify in future. This is likely to make things more difficult for UK-based manufacturers selling directly into the US, and might encourage UK firms to develop closer partnerships or supply contracts with US firms. These changes may, therefore, require UK firms to re-think their market entry strategies into the US or how they sustain their current market position.

Three other factors may be important for firms considering the future of the US market. First, before the Brexit vote there was much discussion of the Transatlantic Trade & Investment Partnership (TTIP) with the EU. Although talks started on this deal in 2013, Trump’s comments suggest this is now unlikely to progress.

This means both that EU trade with the US will not benefit from a free trade agreement, and the same is likely to be true of the UK. Trump has said a trade deal with the UK will be done "quickly", but in pure economic terms the European Union and China are more important markets for US firms. Any sort of deal will take years to agree and, I would wager, would not be completed by the end of 2019, as some people have suggested.

The immediate reaction of the financial markets to the Trump election victory also suggests more volatility to come, and perhaps if trade is restricted, slower US growth in the medium-term. Slower US growth is likely to have negative consequences globally, but more specifically will also limit US market opportunities for UK SMEs.

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So where does this leave us? The US is, and will remain despite the Trump victory, a vital export market for UK SMEs. We already run a positive trade balance in the US, with many UK companies making good returns. Current levels of sterling also provide a window of opportunity for UK firms to start selling into the US or sell more. And, for the moment, nothing else has changed.

Also important, and valuable to many US exporters, are the network of consular and embassy staff which the UK Government maintains in the US.

Linked back to the UK through what was UK Trade and Investment (now the Department of International Trade) they provide useful market entry points, information and contacts for UK exporters. And, where SMEs are new to exporting, they can provide guidance and support in developing an effective export strategy. 

 

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