Estimated reading time: 5 minutes

International businesses have watched the recent imposition of trade tariffs with a degree of trepidation as to the effect on their own supply chains and business operations. With the establishment of a UK-US trade deal and further announcements likely, Mansour Davarian, Head of Transaction Banking Solutions, Lloyds Corporate & Institutional, explains what the focus on tariffs could mean for UK corporates moving forward and why the focus on mitigating disruption over the past decade will make it easier for firms to navigate forthcoming volatility, however significant it may be.

Waiting with bated breath 

Global supply chains have become extremely complex and intricate networks through which corporates move components, parts and products both internally, between their own businesses, and externally, via third parties. UK supply chains are also incorporated into finished goods that are ultimately destined for the United States. As a result, the global events of 2025 are likely to have a consequential impact on the way that UK corporates operate. 

Banks must work closely with their clients to help them prepare for significant change in the trade landscape. Lloyds reports that the predominant short-term sentiment is one of adjournment over action. With US trade policy – and the global response – changing rapidly, clients are keen to ‘wait and see’ whether the result will be a seismic shift in global trading relationships, or an economic ripple with little consequence to their operations. 

Clients are, of course, concerned about if, when, and how they should act; but they are perhaps even more concerned about the propensity to make knee jerk reactions that ultimately prove to be impulsive and counterproductive. This is perhaps the strongest motivation behind clients’ desire to watch and wait for now.

Prioritising preparation 

Many UK businesses are already well equipped to deal with the uncertainty they face. Part of this can be attributed to the effect of global volatility over the past decade. From COVID-19 to the conflict in Ukraine and the Red Sea crisis, a number of firms have already recalibrated their supply chains to be more resilient and resistant to disruption. 

Some firms have already moved manufacturing to the US, which will mitigate the impact of any incoming tariffs. Others have taken an active stance in managing their supply chains through analysis and mapping, ultimately providing end-to-end visibility and the means to understand logistics routes, diversify suppliers, and prepare for disruption. 

Some are even choosing to stockpile inventory in anticipation of tariffs being implemented. Although this may have limited disruption, it still comes at a cost to working capital, so it should be considered carefully. 

Either way, the focus on mitigating disruption over the past decade will mean that corporates are better prepared for the forthcoming volatility, however significant it may be. 

The main challenge for bank clients will come if, and when, reciprocal tariffs are established around the world, depending on their severity. This is where firms will feel the most material impact, and where they could potentially see the most significant consequences on their supply chain and operations. 

For UK firms, most of this impact has been avoided through the UK-US trade deal, which revises many of the levies imposed earlier this year. While the deal is yet to be finalised, it could have broadly positive consequences for sectors that rely on US exports, such as the automotive industry. Just under a fifth (16.9%) of British-made cars are exported to the US. 

Although corporates are hesitant to act impulsively, there are still measures that can be taken now to prepare for any future action. Diving deep into supply chains through mapping and stress-testing exercises can help corporate treasurers understand where components are located and avoid over-reliance on particular regions or territories, instead ensuring diversification. This process can also help to reveal a corporate’s risk exposure while identifying new markets to enter. 

Using this time to prepare can ensure that the business is ready to act when the path ahead is clearer – the timing of which will depend on individual businesses, sectors, and circumstances.

Reasons to be cheerful 

While companies watch the news agenda for further tariff announcements, there are positive developments to consider. A change in commodity prices – particularly lower oil prices – will benefit some corporates, and there may be further benefits seen through higher inward investments.

In addition to the UK-US trade deal, the thawing in trading relationships between the US and China could spell positive news for firms with international supply chains. While much is still to be negotiated, the de-escalation of trade tensions could reduce the level of global uncertainty that firms are facing into. 

The defence sector also continues to remain very positive. With significant political focus this year on the requirement for defence spending, many small- and medium-sized firms across Europe are adopting defence manufacturing; firms in this segment believe that the months ahead offer a positive and prosperous environment when it comes to trade.

Banks that are relationship-led tend to have a more acute understanding of the challenges faced by corporates operating in today’s volatile environment. Internationally connected with a UK focus, Lloyds supports clients’ trading ambitions by working alongside them, allowing trade and working capital solutions to be all the more innovative, impactful, and detailed. These characteristics are essential for firms trying to manage the broader suite of risks associated with international trade during periods of volatility.