Trump’s tariffs: time to look east

President Trump’s tariff war is in full swing and no one knows how it will end. Lena Sellgren, Chief Economist at Business Sweden, gives her view of the situation and options for how business can think now.

Trump’s tariff threats existed before he took office, but few expected a trade war to take off so quickly and gain so much political traction. Tariffs have a negative impact but are manageable for most businesses, while uncertainty is far more worrisome. Uncertainty – or perhaps more accurately, unpredictability – complicates strategic business decisions and holds back both investment and consumption. This in turn is holding back the growth of the global economy and postponing the expected recovery. But are tariffs really manageable for Swedish SMEs?

Small and medium-sized enterprises more vulnerable

There are around 1.2 million businesses in Sweden, of which 97% are small businesses with fewer than 10 employees. If we add medium-sized enterprises (up to 249 employees), the proportion rises to 99.9%. Despite this, large companies are often given more space in various contexts. This is also the case when we talk about the effects of the recent US import tariffs.

Smaller companies exporting to the US are more affected by US import tariffs than large multinationals.

While large companies account for the majority of goods exports, exports by SMEs are growing faster. However, it is unusual for SMEs to export to geographically more distant markets. The majority of SMEs have their production in Sweden and export mainly to the Nordic countries and then to other countries in Europe. However, SMEs exporting to the US are likely to be more affected by US import tariffs than large multinationals. The smaller ones are more vulnerable as they often have only one or a few export markets and much less capacity. A complicated customs regime that also changes from day to day is not good for anyone and especially not for the smaller companies.

Tariffs also affect subcontractors

It is important to remember that it is the importer (buyer) in the country of destination who pays the customs duty. In practice, it is often the buyer who pays the customs duty to the carrier of the goods, who in turn pays the amount to a customs authority or equivalent. Thus, Trump’s import duties are paid by US businesses and consumers who import goods subject to the duties.

All is not doom and gloom despite Trump’s tariff war against the world. More than 80% of Swedish exports go to the EU’s internal market or to markets with which the EU has free trade agreements.

The duty can be seen as a tax that in most cases makes the product more expensive than domestically produced goods. This means that Swedish companies exporting to the US find it more difficult to compete in the US market. Here too, small and medium-sized enterprises are hit relatively harder as, unlike many of the larger multinationals, they do not have any production in the US that allows them to avoid customs duties. In addition, many SMEs in Sweden are subcontractors to larger companies that export to the US. This means that they are indirectly affected by the US import tariffs.

Time to look east

But all is not doom and gloom despite Trump’s tariff war on the world. Over 80% of Swedish exports go to the EU’s internal market or to markets with which the EU has free trade agreements. In addition, the EU has a number of ongoing free trade agreement negotiations with Asian countries such as India, Indonesia, the Philippines, Thailand and Australia. It is therefore high time to turn our gaze eastwards and look at new growing export markets.

See the possibilities and dare to go for it! And don’t hesitate to get help if it is difficult to set the compass on your own. Business Sweden, together with embassies, consulates and chambers of commerce, is present in more than 40 markets around the world and is ready to support!

Lena Sellgren

Chief Economist, Business Sweden