Andrew Montgomery runs the last shop before the Irish border. Set 60 yards back from the swirling River Foyle on the site of a demolished customs post, his enterprising pet supply business is in danger of being swept away by post-Brexit tariffs.

The firm’s Puppy and Junior range of dog snacks is a paragon of European cooperation: the ingredients come from Kilkenny in the Irish Republic, the bags are manufactured in Italy and France, and the product is assembled in the UK.

Dano’s Petshop has thrived as the border between Strabane in County Tyrone, Northern Ireland, and Lifford, over the bridge in County Donegal, in the republic, has been physically and psychologically erased.

Where an 18ft army checkpoint, known as the Camel’s Hump, stood during the Troubles, 18ft-high stainless-steel sculptures of dancers and musicians now overlook non-stop flows of traffic between the two countries. Half of Montgomery’s customers, he estimates, come from the UK, half from Ireland. He and his family live in Strabane; his staff come in from the republic.

“The whole place is integrated,” Montgomery, 38, explained. “Strabane and Lifford are one town. There are no tariffs now but I’m worried we will be forced to pay them on dog food and bags after Brexit. If tariffs come in, it’s going to confuse everything.

“If there’s a border here again, there’s going to be trouble. It would kill businesses. There would be long queues of traffic. No one would call in.”

Next door, at Dolan’s petrol station and store, Ursula Russell had driven over from the village of Convoy, County Donegal, to load up with paraffin for heating. Four jerrycans in Northern Ireland are the equivalent of €60 (£51). Back home, she reckoned, it would be €100. “If a hard border comes back,” she said, “it would cost us a lot more. It’s worth the journey.”

Facebook Twitter Pinterest Fluid flow: A sign displays the price of coal in both GB Sterling and Euro at a petrol station in Strabane. Photograph: Paul McErlane/The Guardian

Coal, paraffin, cigarettes and alcohol are all cheaper in the north, said Elaine McLaughlin, who has worked in Dolan’s for more than 25 years. “Closing the border would cause too much chaos. For once, the stupid things are not going on here but across the water where they can’t make up their mind.”

Her views are endorsed by business leaders, who are alarmed by UK tariff proposals unveiled last week which, they warn, will cause industrial-scale smuggling worse than the illegal, paramilitary-backed cross-border trade at the height of the Troubles.

The UK government’s decision not to apply tariffs on imports from the republic in the event of no deal is an existential threat, they fear, since Ireland, as an EU member, will be obliged to impose steep duties on goods from outside the single market. That differential could wipe out farms and manufacturers facing tariffs when they export to Ireland and unable to compete with tariff-free goods entering from Ireland.

“It’s been an awful shock to businesses to comprehend what the policy will do to us,” said Declan Billington, the head of the Northern Ireland Food and Drink Association. “We’ll be facing tariffs exporting to Ireland which could well be 30% to 40% on beef, but beef from the south will come in with zero tariffs. It will impose severe strain on cross-border communities where trade has flourished for the past 20 years.

“Think about the farmer who can’t sell his milk south of the border to be made into butter because tariffs have made it too expensive. He has no income coming in and is sitting there watching the same butter flowing freely back into his market.”

Irish agriculture evolved into an all-island single market after the peace deal in 1998 with consolidation of production to establish economies of scale. A third of Northern Irish milk goes south of the border to be processed into butter, cheese and dried milk for baby formula and ice cream. Sheep farmers send 400,000 animals a year to be slaughtered south of the border, while pigs travel in the opposite direction.

Because of the tariff decision, the scale of smuggling could be vast, with goods from all over Europe moving into Ireland, through Northern Ireland and into Britain.

“Smugglers are very clever. It wouldn’t take them long to see where the opportunities are,” added Billington.

There would be little to stop them importing cheap meat from Brazil, putting it in a bonded warehouse in the republic, smuggling it into Northern Ireland in broad daylight, changing the cab of the articulated lorry to a vehicle with a British number plate and driving it into Britain. “It would take seconds to change the cab,” said Stephen Kelly, the chief executive of Manufacturing Northern Ireland.

Ivor Ferguson, the president of the Ulster Farmers Union, also warned last week the tariff proposal would “drive down prices and hit producers”.

He added: “It could also potentially open the door to illegal trade which would seriously impact on the integrity of the Northern Ireland agri-food business.”

In Lifford, Denis Dolan, who owns land on both sides of the border, had parked his Land Rover outside the Homeland Agri store. “It will be a disaster if they bring in tariffs one way but not the other,” the 56-year-old farmer said. “The whole country will be at a standstill. There should be free trade. People don’t understand the border.”

Facebook Twitter Pinterest Northern Ireland farmer Denis Dolan says one-way tariffs will be a disaster. Photograph: Paul McErlane/The Guardian

In the 1980s, Strabane had unenviable records as the most bombed town in Europe proportionate to its population and having the worst unemployment rate in the UK. Since the border opened, the transformation has been remarkable.

The town now promotes itself as birthplace of the Irish comic writer Flann O’Brien and a centre for cultural exploration. A hard border would provide a target and encouragement for dissident republican attacks, locals fear. An Irish Republican Socialist Party (IRSP) placard calling for a referendum on reuniting Ireland has been attached to the bridge. The IRSP is the political wing of the Irish National Liberation Army.

Facebook Twitter Pinterest Pharmacist Robert Wilson with the River Foyle behind him in the border town of Lifford, Ireland. Photograph: Paul McErlane/The Guardian

Robert Wilson, 44, lives in Northern Ireland but runs a pharmacy in Lifford. He pays his taxes in the republic. Reimposing customs checks would be a “nightmare”, he believes.

“There’s a bit of dissident [IRA] fuel smuggling but not much because the value of sterling has fallen so much. It’s grand at the moment. Last year, a police patrol car drove over the bridge into Lifford by mistake. They didn’t realise they were in the south until they had to pay for their chips in euros.”