Commentary
Political Risk Analysis
Carlos Mosca

An analysis of the potential political risk of US-imposed Tariffs and their consequences

While we are still awaiting the full effects of the latest round of U.S. tariffs, it is already evident how financial markets reacted. Negatively.

The Dow Jones and broader indices immediately started to drop sharply.

This reaction prompts reflection: if a military conflict with Russia sent shockwaves through global economies, the current economic war being waged through tariffs may prove equally damaging. Most certainly more insidious.

The sudden “pause” in tariff escalation toward many countries but China, recently announced by the U.S. President, adds another layer of complexity.

This shift in tone may suggest not so much a change of strategy or a change of heart but a method of distraction.

It comes perfectly timed to steer public and political attention elsewhere while deeper structural shifts continue behind the curtain.

Are these shifts advantageous to SMEs?

This is what prompted me to write this commentary. In the hope to see what could happen, how any changes of policies, politics and attitudes may or may not impact SMEs and why it is important to monitor and build a solid plan.

IMPORTANT: The goal of this commentary is to understand structural trends—not personalities.

Tariffs as Economic Leverage or Strategic Distraction?

The U.S. administration’s use of tariffs follows a well-established pattern: using economic instruments for trade leverage and for managing the political narrative.

Historical data supports the observation that sharp policy moves often coincide with domestic controversies. This suggests a tactical use of economic decisions to shift media and public focus.

In this context, tariffs may serve several purposes:

1) a projection of national strength on the global stage;

2) a mechanism to redirect attention during politically sensitive periods;

3) allow for speculation: buy while the market is low. An old tactic. As old as the world, but it rarely rewards small investors.

Whichever the reason, the costs to SMEs are especially high. Why? SMEs may not benefit from buying low on the stock market while the market is sinking. Nevertheless, their costs are significant and escalating.

Impact on SMEs and Employment

SMEs in the U.S., the UK, and the EU are disproportionately affected.

Tariffs increase the cost of imported goods and materials while reducing export competitiveness due to retaliatory measures (hence leading to reduced market access).

This mirrors the economic contraction seen under the 1930 Smoot-Hawley Tariff Act, which contributed to the deepening of the Great Depression instead of solving it.

In today’s interconnected economy, these disruptions have wider and faster-spreading consequences.

In the United States, SMEs face squeezed margins, rising input costs, and narrowing access to global customers. These are not the conditions under which innovation or employment thrive, although we can count on reshoring, something UK SMEs have mastered since Brexit.

However, despite this new and acquired taste for reshoring, in the UK, the situation is similarly precarious.

Prime Minister Keir Starmer has stated unequivocally that even a temporary exemption from U.S. tariffs will not shield the UK from broader economic strain.

He remains committed to fiscal discipline, avoiding additional borrowing to fund trade interventions.

Chancellor Rachel Reeves has emphasised the importance of strengthening economic ties with the EU. However, she has been calling for such strong ties since December 2024. Read in this what you wish.

The UK government is preparing for a pivotal summit on May 19th, aimed at reducing both tariff and non-tariff barriers between the UK and EU.

This move signals a strategic pivot toward Europe as a more stable trading partner, potentially reshaping the UK’s post-Brexit economic orientation.

A War SMEs Can’t Afford

For SMEs, this economic conflict may resemble other geopolitical struggles in its consequences: capital uncertainty, diminished market access, and reduced investor confidence.

Much like the energy and supply chain disruptions caused by the war in Ukraine, these trade tensions distort market logic.

Unlike larger firms, SMEs lack the buffer and lobbying power to weather prolonged policy volatility.

This situation underscores the need for more effective supportive measures for small businesses.

Reshoring could be a viable option, but the UK government must urgently address the rising production costs.

These challenges need to be addressed, irrespective of future EU agreements or shifts in the US administration’s approach.

Is a New Oligarchy Emerging in the US?

There is growing concern that protectionist measures, while framed as populist, in practice empower a narrow group of economically and politically connected players.

These entities are better equipped to adapt, lobby, and absorb the impact of tariffs. In contrast, smaller players shrink or exit, leading to consolidation and monopolisation.

When the system favours scale and access over merit and competitiveness, oligarchic tendencies begin to take hold.

Further complicating the picture is the speculative trading of essential resources like water, for example.

Add to this an underfunded IRS, years behind in auditing, and we see a system vulnerable to exploitation—whether by individuals, corporations, or political interests.

There seem to be too many structural weaknesses. These may make the economy more fragile and open to capture by entrenched interests—conditions that have historically precipitated oligarchic drift in other nations.

Global Repercussions and the Strategic Realignment of the UK and EU

While U.S. tariffs strain traditional alliances, they may inadvertently accelerate UK-EU rapprochement—one of the key elements of Reeves’ plan from the outset.

The upcoming May 19th summit is not just a bureaucratic milestone; it marks a strategic inflection point.

UK policymakers are increasingly viewing Europe not only as a political partner but also as a bulwark against external economic shocks.

Chancellor Reeves is positioning Britain to deepen its economic ties with the EU, diversifying away from the volatility of transatlantic trade.

This global rebalancing could diminish U.S. leverage over European economies and foster greater intra-European economic cohesion—developments with significant long-term geopolitical implications.

However, here comes the question that led me to write this commentary:

What does this mean for SMEs?

The uncertainty is overwhelming, and national borders may offer a more stable refuge for SMEs that cannot quickly shift production, logistics, and other operations, unlike larger corporations.

It is time to move beyond strategy and focus on concrete, actionable plans.

The U.S. tariff regime—especially when applied erratically or as part of broader political maneuvering—introduces systemic risks: It harms SMEs, destabilises alliances, and accelerates wealth concentration.

Temporary pauses or shifts in tone do little to alter these underlying trends.

This is not a theoretical issue; SMEs need to plan accordingly.