What are the main challenges and risks of trade wars for small and medium enterprises?

2 Supply chain disruptions

Another consequence of trade wars is that they can disrupt the supply chains of SMEs that rely on cross-border transactions. Trade wars can create uncertainty, delays, or shortages in the availability and quality of inputs or outputs. They can also affect the logistics, transportation, or customs procedures that facilitate trade flows. Supply chain disruptions can hamper the efficiency and productivity of SMEs, affecting their ability to meet demand, deliver orders, or maintain quality standards.

3 Demand shocks

Trade wars can also affect the demand for goods and services produced by SMEs, both domestically and internationally. Trade wars can reduce the income and purchasing power of consumers and businesses in the countries involved, lowering their demand for imports or exports. They can also affect the consumer preferences, tastes, or sentiments towards certain products or countries, altering their demand patterns. Demand shocks can reduce the sales and revenues of SMEs, affecting their cash flow, liquidity, or solvency.

4 Regulatory changes

Trade wars can also trigger regulatory changes that affect the operations and strategies of SMEs. Trade wars can lead to changes in the trade policies, rules, or agreements that govern the access and conditions of markets. They can also lead to changes in the domestic policies, laws, or regulations that affect the business environment, such as taxes, subsidies, standards, or intellectual property rights. Regulatory changes can create new opportunities or challenges for SMEs, requiring them to adapt or comply with different requirements or expectations.

5 Competition shifts

Trade wars can also alter the competitive landscape for SMEs, both within and across sectors and countries. Trade wars can create new barriers or advantages for certain firms, industries, or regions, affecting their relative costs, prices, or quality. They can also create new openings or threats for new entrants, substitutes, or complements, affecting their market share, differentiation, or innovation. Competition shifts can affect the market position and performance of SMEs, requiring them to adjust their products, services, or strategies.

6 Resilience strategies

Despite the challenges and risks of trade wars, SMEs can also adopt some strategies to enhance their resilience and cope with the changing trade environment. Some of these strategies include: diversifying their markets, suppliers, or products; investing in digitalization, innovation, or sustainability; collaborating with other firms, organizations, or networks; seeking information, advice, or support from relevant sources; and advocating for fair and open trade policies and practices.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?