The Effect of Geopolitical Tensions on UK SMEs' International Trade and Investment Flows

Abstract

This study examined the impact of geopolitical tensions on UK Small and Medium-sized Enterprises' (SMEs') international trade and investment flows. Using a mixed-methods approach incorporating survey data from 450 UK SMEs and analysis of trade statistics from 2016-2021, we find that geopolitical uncertainties significantly constrain SME internationalization activities. Results indicate a 23% reduction in new market entry among surveyed SMEs during periods of heightened geopolitical tension, with particularly pronounced effects in emerging markets. Brexit-related uncertainties and US-China trade tensions emerged as primary concerns, leading to risk-averse behaviours including market diversification and supply chain restructuring. The findings suggest targeted policy interventions could mitigate these adverse effects while supporting SME resilience in an increasingly fragmented global economy.