The wave of protectionism sweeping across the globe owing to the Sino-US trade war and the rise of populism across the world is having a direct impact on businesses. Credit Suisse’s 2019 SME gives an analysis on how well the Small to Medium Enterprises are coping with the downtown and hurdles ahead. Below is their press release from 08/27/2019;
The current turbulence in global trade is also affecting Swiss SME exporters due to their close integration into international value creation chains. In this year’s SME study, some 560 SME exporters were asked for their views on protectionism and trade obstacles. The results show that Swiss SME exporters have so far perceived only a slight intensification in global trade barriers, and have largely been able to overcome the hurdles they encounter. The European and US markets are particularly important to Swiss SMEs. Accordingly, a majority of the companies surveyed took a positive view of the current draft framework agreement with the EU, as well as being in favor of a free trade agreement with the US.
The term “protectionism” has appeared widely in the media ever since the election of Donald Trump as US President and the ensuing trade war with China. Although the data on trade-distorting interventions worldwide shows that the number of protectionist measures implemented annually has been rising ever since the financial crisis of 2009, there has been a sharp acceleration in this increase since 2016. However, protectionism is not just a phenomenon affecting US and Chinese markets. It is geographically widespread, and also encompasses Europe, the most important sales market for Swiss SMEs. The economists of Credit Suisse have taken this opportunity to conduct a survey of some 560 Swiss SME exporters on the theme of protectionism and trade obstacles.
Three out of every ten SMEs affected by export hurdles
In the survey, 29% of companies state that trade barriers and customs obstacles currently represent a major or very major challenge. By contrast, 40% of SMEs perceive no or only a minor challenge. Moreover, a comparison over time reveals that the accelerated rise in protectionism since 2016 appears to have affected Swiss SMEs only slightly so far: Compared to five years ago, the situation has deteriorated for just 23% of respondents, whereas around a half have perceived no change. Furthermore, the business situation of exporters, which was predominantly perceived to be good when the survey was conducted, has not been severely impaired by trade obstacles.
Majority of SMEs in favor of EU framework agreement and US free trade agreement
As the survey results show, SMEs primarily pursue two strategies to overcome trade obstacles: 63% consider collaboration with external partners or existing networks locally to be the most promising strategy. The next most effective strategy is perceived by SMEs to be the use of free trade agreements. Almost 60% of respondents are in favor of a free trade agreement with the US, and around a third consider such an agreement to be urgently needed. Particularly against a backdrop of trade wars involving the US, a free trade agreement could provide Swiss exporters with greater certainty. The need for stability in trade matters is also apparent from the support shown by a majority of respondents in the Credit Suisse survey for the draft framework agreement between Switzerland and the EU: 56% of surveyed SMEs expressed their support for this agreement.
Commercial factors a greater obstacle to exports than tariff-based and non-tariff trade barriers
In addition to the protectionist interventions of foreign states, a large number of other factors – both external and company-specific – weigh on a company’s export activity. The Credit Suisse survey shows that the principal weapon in the current trade war, namely conventional customs tariffs, affects just under a half of respondent companies. However, various non-tariff trade obstacles pose more of a problem. These include customs procedures and the need to provide conformity assessments and proof of origin. But it is actually two commercial factors that are considered by the surveyed companies to be the most export-restricting aspects of all, ranking ahead of both tariff-based and non-tariff obstacles: the price of the service/product offered by the company, and prevailing exchange rates.
Exporters to Russia and Brazil face daunting trade barriers
In the European markets that are so important to Swiss companies, just 20 to 30% of surveyed SMEs perceive trade obstacles. A significantly higher proportion of survey respondents encounter hurdles when exporting to other markets. Just under 50% perceive obstacles when it comes to the second most important export destination, the US, and as many as 54% when it comes to the third most important export market, China/Hong Kong. In keeping with this finding, a high proportion of the interviewed SMEs have considered exporting to China/Hong Kong in the past, only to decide against taking such a step. The survey shows that the greatest export hurdles of all are encountered in connection with Russia and Brazil – with more than 60% of surveyed SMEs facing trade obstacles here.
About the study
There are around 600,000 SMEs operating in Switzerland, and together they provide employment for approximately two thirds of the country’s working population. As part of their series of SME studies, the economists of Credit Suisse have been taking the pulse of small and medium-sized enterprises in recent years with regard to various topics. In this year’s issue, some 560 Swiss SMEs were questioned about various aspects relating to the theme of protectionism and trade barriers.
The publication “Swiss SME economy 2019 – export hurdles in practice” is available on the internet in German, French, Italian and English at: www.credit-suisse.com/smestudy.
DisruptionBanking gives this press release a Three Star rating. One for the Disruption caused by Protectionism, one for Depth of Survey and one for Ease of Access to Information.