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Navigating Tariffs: A Guide for Hong Kong SMEs

In today’s fast-paced business environment, staying informed and making data-driven decisions are crucial for the success of small and medium-sized enterprises (SMEs) in Hong Kong. Here are some key facts and insights that can help your business thrive, with a focus on recent tariffs and their impact on trade with the US and UK.

1. Understanding the Market Landscape
Hong Kong is known for its dynamic and competitive market. SMEs need to stay updated on market trends and consumer preferences to remain relevant. Regular market research and analysis can provide valuable insights into customer behaviour and emerging opportunities.

2. Embracing Technology
Technology plays a vital role in modern business operations. SMEs should leverage digital tools and platforms to streamline processes, enhance productivity, and improve customer engagement. From cloud computing to e-commerce solutions, technology can help businesses operate more efficiently and reach a wider audience.

3. Fostering Innovation
Innovation is key to staying ahead of the competition. Encourage a culture of creativity and experimentation within your organisation. Invest in research and development to create new products or improve existing ones. Collaborate with other businesses and institutions to gain fresh perspectives and access new resources.

4. Building Strong Relationships
Networking and building strong relationships with customers, suppliers, and other stakeholders are essential for business growth. Attend industry events, join business associations, and participate in community activities to expand your network. Strong relationships can lead to new opportunities and valuable partnerships.

5. Managing Finances Wisely
Effective financial management is critical for the sustainability of SMEs. Keep a close eye on your cash flow, manage expenses carefully, and plan for future investments. Seek professional advice if needed to ensure your financial strategies align with your business goals.

6. Prioritising Customer Satisfaction
Customer satisfaction should be at the heart of your business strategy. Provide excellent customer service, listen to feedback, and continuously improve your products and services. Happy customers are more likely to become repeat buyers and refer your business to others.

7. Timeline and Impact of Recent Tariffs
US/UK Trade Deal (May 2025) Overview

• On May 8, 2025, the US and UK announced a breakthrough trade agreement, the first major US trade deal since the Trump administration imposed sweeping global tariffs earlier this year.
• Key features:
  • The US will maintain a 10% base tariff on most imports, including UK goods, but will reduce or eliminate tariffs on specific products such as steel, aluminium, and automobiles from the UK
  • The UK will lower its tariffs on US goods from 5.1% to 1.8% and provide broader access for American products, particularly in agriculture and machinery
  • The deal aims to streamline customs for UK exports to the US and secure pharmaceutical supply chains.
• The agreement is expected to boost bilateral trade and create new export opportunities, but most of the US’s high tariffs on other countries, especially China (and by extension Hong Kong), remain in place.

Impact on Hong Kong SMEs

• Tariffs on Hong Kong Remain Unchanged: The new US/UK deal does not reduce or alter the high tariffs imposed on Chinese and Hong Kong goods. US tariffs on Hong Kong exports, including small parcels, remain at punitive levels (often exceeding 145%).
• Severe Export Disruption: Many Hong Kong SMEs, especially those in electronics, jewellery, and consumer goods, have found it “impossible” to do business with the US due to the high tariffs. Orders have been cancelled or put on hold, and US clients are withdrawing.
• E-commerce Hit Hard: The US tripled tariffs on low-value parcels from Hong Kong, with duties now at 90–120% or a minimum of US$75–$150 per item, eliminating the previous duty-free threshold for small shipments. This is devastating for SMEs reliant on e-commerce and small parcel exports.
• Cash Flow and Liquidity Strain: SMEs have completed goods ready to ship but are unable to send them to the US, tying up working capital and putting pressure on cash flows.
• Market Diversification Needed: Industry leaders and the Hong Kong government are urging SMEs to pivot to new markets, especially in Southeast Asia and along the Belt and Road, but this transition is slow and challenging.
• Government Support: The Hong Kong government is providing enhanced export credit insurance, liquidity support, and incentives for SMEs to explore new markets and invest in digital transformation.
• Long-Term Pain: Experts say it will take at least 1–2 years for SMEs to recover from the shock and find alternative markets. Larger firms may adapt more quickly, but SMEs face a painful adjustment period.

Update: As of Monday, May 12, 2025, the United States and China reached a significant agreement to temporarily reduce tariffs on each other’s goods for 90 days, marking a major de-escalation in the ongoing trade conflict:

• The U.S. will lower its tariffs on Chinese imports from a peak of 145% down to 30%, while China will reduce its tariffs on U.S. goods from 125% to 10%
• Both countries agreed to suspend the additional tariffs imposed since early April 2025, including the U.S. 34% reciprocal tariff and China’s 34% retaliatory tariff, but retain a baseline 10% tariff during the suspension period.
• The U.S. also reduced the “de minimis” tariff on small shipments from China from 120% to 54%, with a flat fee of $100 starting May 14, 2025.
• The tariff reductions are intended to remain in effect for 90 days while further trade negotiations continue, with high-level talks scheduled between U.S. and Chinese officials.
• This move aims to ease inflationary pressures, support American manufacturing, and avoid a full-scale trade war. Both sides emphasise the importance of continuing trade and avoiding economic decoupling.
• The announcement was positively received by U.S. financial markets, with notable gains in major stock indices following the news.

In summary, the Trump administration has agreed to a temporary tariff rollback with China, reducing tariffs substantially but maintaining a 10% baseline tariff to protect U.S. interests. At the same time, both sides commit to ongoing dialogue to resolve trade issues.

How this impacts HK SME’s:
By understanding the market, embracing technology, fostering innovation, building strong relationships, managing finances wisely, and prioritising customer satisfaction, Hong Kong SMEs can navigate challenges and seize growth opportunities. Stay informed, be adaptable, and always strive for excellence.

Conclusion
The Trump administration has agreed to a temporary tariff rollback with China, reducing tariffs substantially but maintaining a 10% baseline tariff to protect U.S. interests. At the same time, both sides commit to ongoing dialogue to resolve trade issues.

Written by Tarynn Hatton-Jones of Burnt Oringe International.