Commentary (analysis, opinion)

What the US Section 122 tariff means for small UK exporters

The US 15% Section 122 tariff, effective 24 February 2026, imposes a uniform cost increase on virtually all UK goods entering the American market. While large multinationals can absorb or diversify around a 5% uplift, analysis suggests the burden falls disproportionately on the estimated 40,000 UK businesses exporting to the US — the majority of which are SMEs with thin margins, concentrated US exposure, and limited capacity to monitor a fast-moving legal and political situation.

Change event: US 15% global tariff under Section 122 — effective 24 February 2026 Effective 24 February 2026

Context: a swift pivot after a Supreme Court ruling

On 20 February 2026 the US Supreme Court struck down the tariffs that President Trump had imposed using emergency powers under the International Emergency Economic Powers Act (IEEPA). Within hours, the White House invoked Section 122 of the Trade Act of 1974 — a provision that allows the President to impose temporary import surcharges of up to 15% to address what the statute describes as "large and serious" balance-of-payments deficits. The proclamation initially set the surcharge at 10%; on 22 February it was raised to 15%. The measure takes effect on 24 February 2026 and will lapse after 150 days — on 24 July 2026 — unless Congress votes to extend it.

The tariff is non-discriminatory by statute: Section 122 explicitly requires uniform application across all trading partners. This has an immediate consequence for UK exporters: the 10% baseline rate negotiated under the UK-US Economic Prosperity Deal (EPD), agreed in May 2025, is effectively superseded for the duration of the Section 122 measure. Goods previously benefiting from that negotiated rate now face a 15% surcharge, a 5 percentage point increase that arrives with fewer than 48 hours' notice to businesses.

Certain categories are excluded: goods already subject to Section 232 tariffs (steel, aluminium, automobiles), pharmaceuticals, aerospace products, energy commodities, semiconductors, and critical minerals. The White House fact sheet indicates USMCA-compliant goods from Canada and Mexico are also exempt. For UK exporters, these exemptions are narrowly drawn; the large majority of UK goods entering the US are within scope.

Global Trade Alert's analysis of 274,000 trade flows at the HS 8-digit level places the trade-weighted average US tariff rate under the Section 122 regime at 13.2% — higher than the 8.3% that would have applied had no replacement for the IEEPA tariffs been enacted, and modestly lower than the 15.3% that prevailed under the full IEEPA regime before the court ruling.

Why this lands harder on SMEs than on large companies

The British Chambers of Commerce (BCC) estimates that the step-up to 15% increases tariff costs on UK goods exports to the US by £2–3 billion. The approximately 40,000 UK businesses exporting goods to the US will not share that burden equally. Several structural features mean smaller exporters absorb a disproportionately larger shock.

Margin concentration. UK manufacturing SMEs typically operate on net margins of 3–8%. A 5% ad valorem increase on the export price — the net additional cost of moving from 10% to 15% — can erase the profit on a US sale entirely if the exporter must absorb it rather than pass it through to the US buyer. Large multinationals, by contrast, can cross-subsidise affected product lines from diversified global portfolios, or renegotiate at scale with US partners who depend on their supply.

Price-taking dynamics. SMEs are rarely price-setters in transatlantic trade. Where a UK company supplies a US retailer, food distributor, or manufacturer as a secondary or specialist vendor, the commercial leverage to renegotiate prices upward sits with the buyer. Enterprise Nation's analysis of the tariff environment notes that smaller exporters have "less pricing power, thinner margins and less of a cash flow buffer" than their larger competitors, making cost pass-through structurally difficult.

US market concentration. The Federation of Small Businesses (FSB) has reported that approximately 59% of small UK exporters sell into the US market. For a firm with 60% of its export revenue from one market, a sudden cost increase of this magnitude is existential in a way it is not for a FTSE 250 manufacturer with customers across 40 countries.

Administrative overhead. Responding appropriately to a tariff change of this nature requires a firm to review Harmonised System (HS) classifications for each product, assess whether any exemption categories apply, insert tariff risk clauses into forward contracts, brief its freight forwarder and customs agent on the new subheadings (9903.03.01 for the Section 122 duty; 9903.03.02–9903.03.11 for exemptions), and monitor legal developments that may affect the 150-day clock. For a 15-person manufacturer with no in-house trade compliance resource, that overhead is materially different — as a proportion of management time and cost — than for a business with a dedicated customs and trade team.

Working capital timing. Even where an SME can eventually recover the cost increase — through higher invoiced prices, contract renegotiation, or currency hedging — there is typically a timing gap. The exporter bears higher costs today; recovery, if it comes, arrives later. For businesses already under working capital pressure following domestic cost increases (National Insurance contributions, National Living Wage uplifts effective April 2026), this gap matters.

The 150-day uncertainty problem

Section 122's 150-day time limit creates a distinctive planning challenge. The tariff expires on 24 July 2026 unless Congress acts to extend it. The White House has also indicated it is initiating Section 301 investigations into what it characterises as unfair trade practices by trading partners — investigations that could produce replacement tariffs in a separate legal framework within two to three months under an expedited process.

For large businesses with legal and government affairs teams, monitoring this fast-moving picture is routine. For an SME considering whether to fulfil an order, quote a forward price, or sign a new US distribution agreement, the uncertainty is operationally paralysing. Do you price in a 15% tariff for a contract that might last beyond July, or price competitively on the assumption it lapses? Do you invest in rerouting supply chains to avoid tariff stacking, knowing the legal basis may shift again?

The BCC's Head of Trade Policy, William Bain, described the 15% rate as a "further blow to business", noting that "businesses on both sides of the Atlantic need a period of clarity and certainty." The BCC identified the Congressional approval requirement as the "one ray of light" in the scenario — a legislative override mechanism absent from the previous IEEPA framework — but cautioned that the outcome remains uncertain.

What stakeholders are saying

Stakeholder responses divide broadly between those emphasising immediate operational harm and those urging restraint in the UK government's own policy response.

The FSB, which represents over 170,000 small businesses, argued the tariff policy would cause "untold damage to small businesses trying to trade their way into profit while the domestic economy remains flat" and called for government support to prevent business failures. Its Policy Chair, Tina McKenzie, specifically cited the "major blow" the measures represent for SMEs already struggling with weak domestic growth. The FSB has previously published data showing that 59% of small UK exporters rely on the US market, underlining the disproportionate exposure of smaller firms.

Make UK, the manufacturers' organisation, has maintained a live Tariffs Hub tracking developments for manufacturers, reflecting the particular vulnerability of UK goods exporters — as opposed to services exporters — to tariff-based measures. The manufacturing sector, which includes many specialist SME suppliers of components and finished goods to US buyers, faces direct cost exposure.

The Confederation of British Industry (CBI) characterised the tariff package as "deeply troubling" and urged the UK Government to respond calmly, warning explicitly against retaliatory measures that would increase supply chain disruption and reduce inward investment. This reflects a broader concern among larger employer bodies that escalation would harm the UK's attractiveness as an investment destination, even if it offered short-term political leverage.

Legal analysts have added a further layer of caution. Section 122 has never previously been invoked; its legal validity in the current context is contested. Senior trade economists at BCA Research and the Cato Institute have argued that Section 122's trigger condition — a "large and serious" balance-of-payments deficit — does not apply to the United States, which runs a capital account surplus that offsets its goods trade deficit. Fortune reported that Section 122 "does not apply in the current macro environment" according to multiple economists. PKF Francis Clark's customs team has also noted the legal uncertainty that surrounds the measure. Court challenges are considered likely, and their outcome could again alter the tariff environment at short notice.

What support exists for affected SME exporters

Several support mechanisms are available to UK exporters navigating the current environment, though awareness and take-up among SMEs has historically been limited.

UK Export Finance (UKEF). The government has expanded UKEF's capacity from £60 billion to £80 billion, with up to £10 billion specifically designated to support those affected by tariffs. In 2024–25, 74% of the 667 businesses UKEF supported were SMEs, with 80% of those based outside London. Products relevant to tariff-affected exporters include Export Credit Insurance (covering non-payment risk on US receivables), the Export Working Capital Scheme (government guarantees enabling banks to lend against contracts), and the Bond Support Scheme (releasing cash collateral tied up in performance bonds). The government's "Backing Your Business" plan also announced a new Small Export Builder insurance product specifically designed to give smaller firms better access to export protection insurance.

Business Growth Service and DBT Export Support. The Department for Business and Trade's export support offer — being integrated into the new Business Growth Service — includes the UK Export Academy (expanding with video-on-demand and regional trade events), Digital Advisers for marketplace selling, and Trade Advisers accessible through local Growth Hubs. The Business and Trade Committee's 2026 priorities report noted that SMEs in particular reported "confusion over compliance, difficulty understanding treaty documents, and support primarily tailored towards larger firms" — a gap the government has acknowledged in its Trade Strategy implementation.

British Chambers of Commerce network. The BCC's network of accredited Chambers provides hands-on export documentation support, Certificates of Origin, and access to trade missions. For SMEs without in-house trade compliance capacity, Chamber membership offers a practical route to structured support on HS classification queries, customs documentation, and market intelligence.

Market diversification. The Institute of Directors has encouraged members to consider shifting focus away from high-risk markets and towards those with more stable trading arrangements. Ongoing UK free trade agreement negotiations with the Gulf Cooperation Council and Turkey, alongside the EU reset agenda, represent medium-term diversification opportunities for SMEs over-exposed to US market risk. DBT's Export Market Research and Selection guidance can support structured market diversification assessments.

What to watch

Section 301 investigations. The White House has directed the Office of the United States Trade Representative to begin Section 301 investigations into trading partners' practices. These investigations, under an expedited process, could produce replacement tariffs within approximately two to three months — potentially before the Section 122 150-day window expires. The scope and rates of any Section 301 tariffs are not yet determined and could differ significantly from the current flat 15%.

Congressional action. The 150-day clock on Section 122 expires 24 July 2026. Congress must vote to extend the measure or it lapses automatically. Given the political composition of both chambers, the outcome is genuinely uncertain. Businesses should not plan on either expiry or extension as a certainty.

EPD renegotiation. The UK-US Economic Prosperity Deal's 10% rate was implemented through IEEPA executive orders, which the Supreme Court struck down. The White House has indicated it will "continue to honour legally binding agreements on reciprocal trade", but the non-discriminatory nature of Section 122 means the EPD rate cannot be applied differentially for the duration of the current measure. The UK Government and DBT will need to negotiate the restoration or replacement of the EPD preferential rate, and the timeline for that is not confirmed.

Legal challenges. Multiple trade law commentators consider the legal basis of Section 122 as applied here to be vulnerable to challenge. If a court were to strike down Section 122 tariffs as it did IEEPA tariffs, the situation would change again — potentially at short notice. SMEs should monitor developments but avoid making irreversible business decisions (long-term contracts, capital expenditure, market exits) based on assumptions about the permanence of any particular tariff rate.

UK government response. At the time of writing, the UK government has not announced a specific tariff mitigation package targeted at SME exporters affected by the Section 122 surcharge. Businesses and trade bodies are pressing for clarity on whether existing UKEF capacity will be made more accessible for smaller firms affected by working capital pressure, and whether the Business Growth Service will provide dedicated tariff navigation support.

ℹ️ This is analysis, not legal advice

This commentary reflects our analysis of publicly available information at the date of publication (23 February 2026). The Section 122 tariff situation is evolving rapidly. Specific tariff obligations depend on US Customs and Border Protection classifications, the outcome of pending legal challenges, Congressional action on the 150-day extension, and UK–US government negotiations on the Economic Prosperity Deal. Check the linked guides for current export compliance requirements and contact a qualified customs adviser or trade law specialist for advice specific to your business.

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