More than one in five UK small and medium-sized enterprises say international trade tariff disputes remain the single biggest challenge facing their business, as global tensions continue to drive up costs and disrupt supply chains.

New research from Paragon Bank, based on a survey of 1,000 SMEs, found that 21 per cent now view tariff wars as their most significant current concern — ahead of labour shortages, inflation and domestic regulatory pressures.

The findings come almost a year after Donald Trump set out a new round of global tariffs, with ongoing geopolitical tensions adding further uncertainty to international trade. Businesses cited rising input costs, supply chain disruption and shrinking profit margins as the most immediate consequences.

The impact is particularly acute in sectors most exposed to international trade. In transportation and storage, more than a third (36 per cent) of SMEs said tariffs represented their primary challenge, while in manufacturing one in four businesses reported the same.

A quarter of respondents said their profit margins had been directly hit, while 23 per cent reported reduced access to export markets or weaker demand from overseas customers.

Tariff uncertainty is also weighing on confidence and planning. Around 22 per cent of SMEs said it was hampering decision-making, 20 per cent reported longer production times, and 17 per cent said sales had fallen as a result.

The latest wave of trade disputes has its roots in escalating tensions between major global economies, most notably the US–China trade war that began in 2018. Fresh US tariffs introduced in April 2025 triggered retaliatory measures, creating renewed volatility for businesses operating across borders.

For UK SMEs, the consequences have been far-reaching. Companies reliant on imported materials or export markets have faced immediate cost increases, while firms further down the supply chain have also been affected by higher prices and delays.

Phil Hughes, deputy managing director of SME lending at Paragon Bank, said the impact extended well beyond businesses directly involved in international trade.

“Trade tariff disputes have created significant challenges for SMEs, not only those importing or exporting, but also those further down the supply chain,” he said. “Beyond the immediate impact on costs, tariff uncertainty has made planning and decision-making increasingly difficult, leaving many businesses in a state of limbo.”

Hughes said some SMEs had delayed investment or scaled back growth plans as a result of the ongoing uncertainty.

While many businesses have so far absorbed rising costs, concerns are growing about how sustainable that approach will be if tensions persist. In response, SMEs are increasingly exploring alternative sourcing strategies, renegotiating supplier contracts and investing in measures to improve resilience.

“SMEs have shown real resilience, but with tariff uncertainty continuing there are understandable questions about how long this can be maintained,” Hughes added. “As a lender serving more than 16,000 UK SMEs, we are ready to support British businesses with tailored financial solutions to help them adapt and grow in an increasingly unpredictable global trading environment.”

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Over a fifth of UK SMEs say trade tariff war remains their biggest challenge