Tariffs and Trade Conflicts: What They Mean for Exporting SMEs

Why tariffs are a topic for small and midsize firms again

For a long time, many German small and midsize firms (the Mittelstand) saw tariffs as a formality: forms, proof of origin, a few percent on some goods. That has changed. In 2025, the US administration introduced extensive additional tariffs; in the summer of 2025, the EU and the US agreed on a 15 percent ceiling for most goods from the EU; and on February 20, 2026, the US Supreme Court ruled six to three that the tariffs based on an emergency powers law were not permitted. As a replacement, a temporary 10 percent surcharge applied from February 24, 2026. Tariffs on steel, aluminum, and cars under a different legal basis remained in place.

The consequences are measurable. According to Germany’s Federal Statistical Office, German exports to the US fell by 9.4 percent in 2025 to 146.2 billion euros. The US remained the most important destination for German exports, while China again became the most important trading partner overall. The guiding question is therefore: What do tariffs and trade conflicts mean for an exporting small or midsize firm, and how can it adapt? To answer it, we clarify terms, introduce the mental model of tariff incidence, review studies, and weigh two views.

Terms: tariff, additional tariff, retaliatory tariff, delivery term

• Tariff (customs duty): A levy that a state charges on the import of goods, usually as a percentage of the goods’ value. It is paid by the importer to the customs authority of the importing country, not by the exporter in the country of origin.
• Standard and additional tariff: The standard tariff applies equally to all countries with a most-favored-nation trade relationship. Additional tariffs are added on top, targeting specific countries or goods.
• Retaliatory tariff: A tariff with which an affected country responds to foreign tariffs. It then hits importers in its own country who source inputs from the other country.
• Delivery term (Incoterm): The internationally standardized rule on who bears transport, risk, and import duties. Under “delivered duty paid” (DDP), the exporter pays the duty; under “delivered at place” (DAP) or “ex works” (EXW), the customer does.

The delivery term is where a political conflict reaches a small business’s offer. Anyone delivering duty paid bears every tariff increase until delivery. Which other points need to be clarified before the first foreign order is described in The first export order.

The mental model: who bears the tariff burden?

Economics answers the question of who bears a levy with the concept of incidence. A tariff is paid by the importer. It is borne by whoever cannot switch. There are three possibilities, which mix: the foreign supplier lowers its price and bears the tariff itself; the importer passes the tariff on to its customers; or volume falls because customers switch to other suppliers or buy less. Mary Amiti, Stephen Redding, and David Weinstein (2019) show that the distribution depends crucially on how the foreign supplier adjusts its price.

An everyday analogy makes this tangible. When a bridge gets a toll, the driver pays it at the barrier. Those with no other route pay it permanently. Those who can take a detour do so, and then the roadside restaurant beyond the bridge suffers. An exporting business is sometimes the driver and sometimes the restaurant, depending on how easily its customers can switch.

A tariff is paid by the importer. It is borne by whoever cannot switch.

What studies show about the effects of tariffs

Amiti, Redding, and Weinstein (2019) studied the 2018 US tariffs. At that time, imports worth 283 billion dollars were subjected to rates between 10 and 50 percent. Other countries responded with retaliatory tariffs averaging 16 percent on around 121 billion dollars of US exports. Their central finding: foreign suppliers hardly lowered their prices, and the tariffs were fully passed through to domestic prices. By December 2018, they were costing US consumers and importing firms an additional 3.2 billion dollars a month, and the economic loss was 1.4 billion dollars a month. At the same time, supply chains changed substantially, and customers could no longer find some imported varieties.

For an exporter, full pass-through sounds reassuring at first: the customer pays. The second part of the finding is less pleasant. When the price for the customer rises, volume falls, and buyers look for other sources. Jiao, Liu, Tian, and colleagues (2024) show for Chinese exporters that they did not lower their prices despite the US tariffs. Their deliveries to the US fell significantly, while their exports to the EU rose moderately. A tariff thus shifts trade flows rather than just making them more expensive.

The studies have limits. They look at large economies and averages across many industries. For a specialized product from a German small or midsize firm with hardly any substitute in the US, the situation can be more favorable; for an interchangeable component, considerably less so. How companies are rethinking their locations in light of tariffs is described in Reshoring or offshoring: in a survey by Deloitte and the Federation of German Industries, 68 percent of respondents planned relocations, mainly because of tariffs.

Uncertainty as the real burden

For a small exporter, a known tariff of 15 percent is often easier to handle than one that may fluctuate between 10 and 50 percent. With a fixed rate, you can calculate and negotiate. Uncertainty, by contrast, hits three places: offers with long validity periods become a bet, customers postpone orders until the situation is clearer, and investments in a market are deferred.

Refunds also create uncertainty. After the February 2026 ruling, unlawfully collected tariffs are not refunded automatically. Importers or their customs brokers must apply for them through a portal of US Customs and Border Protection, introduced in stages from April 2026. Anyone who delivered duty paid should check whether they or their customer are entitled to a refund and clarify this contractually.

Two views: hold the market or diversify markets?

The first view advises holding the important market. The US remains the largest destination for German exports, customer relationships have grown over years, and competitors from other countries often face the same tariffs. Anyone who withdraws now will find it hard to return later. Price adjustments, tariff clauses, and if necessary local assembly or a warehouse then make sense.

The second view advises diversifying markets. Anyone delivering a large share of their exports to a country whose trade policy changes within months carries a concentration risk. Building new markets in Europe or in countries with EU free trade agreements takes time but reduces dependence. How such a market entry is prepared is described in Export and sales.

I consider diversification the more important lever, but not as a flight from a large market. The mental model of tariff incidence points the way: those with a product without substitutes can hold the market and pass on the tariff. Those who are interchangeable lose first in a trade conflict. For them, building a second pillar is the sober answer, regardless of what the next tariff rate turns out to be. How geopolitical risks are assessed in general is shown in Geopolitics as a business risk.

What exporters can do in practice

1. Measure exposure

   What share of sales and contribution margin goes to countries with additional tariffs? Which goods fall under which tariff code and rate?

2. Check delivery terms

   Who pays the tariff today? With duty-paid delivery, the business bears every increase. For new contracts, check whether delivery without duty paid is possible.

3. Agree tariff clauses

   A clause under which new or higher tariffs after signing adjust the price protects longer contracts. The basics are described in Price adjustment clauses in contracts.

4. Shorten validity periods

   Give offers to affected countries a short validity and note the tariff status as of the offer date.

5. Plan a second pillar

   Select an additional market with low trade barriers and develop it with a manageable budget.

Tariffs often act together with currency fluctuations. A weaker dollar makes German goods in the US even more expensive. How this risk can be hedged is described in Currency risks in exports.

Conclusion: what tariffs mean for exporting SMEs

To the guiding question: tariffs and trade conflicts mean three things above all for exporting small and midsize firms. First, volume falls, even if the tariff is formally paid by the customer, because studies of the 2018 US tariff round show full pass-through to prices in the importing country followed by buyers switching. Second, the burden depends on who can switch: specialists with few substitutes bear less than suppliers of interchangeable goods. Third, uncertainty itself is a burden that must be limited through validity periods, delivery terms, and tariff clauses. The limits of this article: the tariff situation changes quickly, and the studies look at averages for large economies.

1. This week: Determine what share of your sales goes to countries with additional tariffs and under which delivery terms.
2. This month: Add a tariff clause and shorter validity periods to offers and framework agreements.
3. This year: Choose an additional market with low trade barriers and plan your entry.

A small or midsize firm cannot end a trade conflict. But it can decide how much of it ends up in its contracts.