Trade Policy Uncertainty and Small Firm Internationalisation: A Review and Conceptual Framework

Abstract

Trade policy uncertainty has moved from the periphery to the centre of international economics over the past decade, driven by episodes including Brexit, the US–China tariff conflict, and the weakening of multilateral trade governance. While a substantial literature now documents the effects of trade policy uncertainty on aggregate trade flows and large-firm behaviour, its implications for small and medium enterprises remain comparatively under-theorised, despite SMEs' distinctive vulnerability to policy volatility. This paper reviews the theoretical and empirical literature on trade policy uncertainty and firm-level export behaviour, and develops a conceptual framework specifying the mechanisms through which uncertainty affects SME exporters differently from large firms: higher relative sunk costs of market entry and exit, narrower market and product portfolios, constrained access to trade finance and hedging instruments, and higher per-unit information costs of tracking policy developments. The framework generates testable propositions concerning market entry deferral, defensive pricing, and premature market exit, and identifies the policy levers — predictability-enhancing commitment mechanisms, SME-targeted trade intelligence, and counter-cyclical trade finance — most likely to mitigate uncertainty's disproportionate burden on smaller exporters. The paper concludes with an agenda for empirical research on SME responses to trade policy volatility.