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KEY FINDINGS:
Current state of international trade
• The EU is the largest trading partner for small firms. Nine out of 10 exporting small businesses trade with the EU (92% of exporters and 85% of importers). One in five (21%) exporting small firms trade exclusively within the EU single market. However, the majority also trade outside the EU (78% of exporters and 67% of importers), which means that most small firms trading overseas do so both with the EU and non-EU markets (72% of exporters and 53% of importers).
• Based on ease, cost and value (in terms of growth) of trade, small firms are significantly more likely to favour the EU single market over non-EU markets. However, ease of trade is felt to be the biggest difference between trading with the EU and non-EU markets.
• The top non-EU countries with which small firms currently trade, and want prioritised in the future for FTAs, share similar characteristics with the UK. Alongside the UK and Ireland, the US, Canada, Australia and New Zealand are collectively referred to as the Anglosphere, sharing the same national language and similar culture, history and politics. Three-quarters (77%) of exporting small firms trade with these countries, with the US ahead of the pack because of its large market size.
• There is a growing attraction towards certain emerging markets as top trade destinations. On average, one in five (19%) exporting small firms trade with at least one of the top four emerging markets: the United Arab Emirates (UAE), South Africa, China or India. However, China and India are the most prominent, featuring in the top 10 priority markets across both small firms that currently trade overseas and those considering doing so in the future.
• Small firms that trade with emerging markets are more likely to have higher turnovers than those that trade with more mature or established export markets. Those that export to China have an average turnover of £1,512,908. While the average exporting small firm’s turnover is £892,732 and they are most likely to trade within the EU single market or with North America. Small firms that trade with emerging markets are also likely to be more dependent on exporting (as part of their turnover) than those that trade with mature markets.
Opportunities and risks in a post-Brexit trade landscape
• Exporting small firms are split between those expecting very little or no change (42%) to their levels of trade and those expecting material change (49%). Of the small business exporters that expect change, a greater proportion expect to export less overall than more (29% compared to 20%).
• The majority (55%) of small business importers expect very little or no change to their levels of trade. Those that do expect material change are four times more likely to expect to trade less overall than more (31% compared to 7%).
• Of those that export to both the EU and non-EU markets, the majority expect very little or no change to levels of trade with either the former (50%) or latter (60%). Of those that expect material change, while a greater proportion expect to export less than more to the EU (32% compared to 10%), this is roughly balanced by those that expect to export more than less to nonEU markets (26% compared to 8%).
• Tariffs play a role for around half (47%) of where small business exporters trade – one in three (29%) state tariffs play a moderate or big role. By contrast, 42 per cent state that tariffs play no role.
• However, potential exporters and importers anticipate tariffs will play a more significant role in where they export – 76 per cent of Potential Exporters expect tariffs to play a role, and more than half (56%) expect it will play a moderate or big role. Only 12 per cent anticipate it will play no role.
• One in three (34%) small business exporters say they would be deterred from trading with the EU if a tariff rate between two and four per cent (the range within which the EU’s average applied tariff, under WTO rules, tends to have fallen over the past few years) is introduced. However, the most vulnerable are the 21 per cent who trade exclusively within the EU – these firms are half again more likely to say any tariff rate (i.e. anything above 0%) would deter them compared to those that export to both the EU and non-EU markets (39% compared to 26%).
• Non-tariff barriers and tariffs are of equal importance to small businesses. More than half of small firms state that non-tariff barriers play a role in where they export (53%) or import (59%). The biggest concern is increased administrative burdens, such as those associated with complying with rules of origin (ROO), which would pose a real challenge and cost to small businesses trading.
• One in five (20%) small firms that operate their own global supply chains, which move through the EU single market, will consider relocating more or all of their supply chain to the EU. This is double the proportion (9%) that will consider relocating more or all of their supply chain to the UK.
• The overriding reason that triggers or is likely to trigger exporting for the first time is ease of trade both in terms of reacting to direct demand or exploiting easy markets. This is true for current international traders as well as potential international traders.
• Current exporters were twice as likely to have exported for the very first time to the EU as to a non-EU market (68% compared to 32% respectively).
• Potential exporters are also more likely to consider exporting for the first time to the EU single market compared to non-EU markets. However, the gap between the EU and non-EU markets is narrower (77% compared to 54% respectively).
Priority markets for a global UK
• The US and Germany are seen as priority markets with which the UK should prioritise trade deals, (based on small firms that currently trade or are considering doing so). Around half of both Current Exporters and Current Importers selected the US and/or Germany as a priority market (49% of exporters and 45% of importers chose the US, and 47% of both exporters and importers chose Germany). As it will not be possible to negotiate a trade agreement solely with Germany, separate from the EU, the UK will need to prioritise securing a trade deal with the EU.
• China and India are making strong headway as priority markets. Both countries feature in the top 10 priority markets for small firms. Around one-quarter of current exporters (28%) and current importers (27%) prioritise China, and one in five Current Exporters (20%) and Current Importers (18%) prioritise India.