The imposition of economic tariffs has historically played a significant role in shaping global mergers and acquisitions (M&A). Tariffs, by altering trade dynamics and introducing market uncertainties, can influence corporate strategies, valuations, and the overall pace of cross-border transactions. This article examines the multifaceted effects of tariffs on global M&A, supported by historical instances and the latest developments from 2025.
The Influence of Tariffs on M&A Dynamics
Tariffs, essentially taxes on imported goods, can disrupt established supply chains, modify competitive landscapes, and introduce economic uncertainties. These changes compel companies to reassess their strategic objectives, often affecting their approach to mergers and acquisitions. The primary ways tariffs influence M&A activities include:
- Valuation Challenges: Tariffs can lead to increased costs and reduced profitability for companies reliant on international trade. This uncertainty complicates the valuation of potential M&A targets, as future earnings become harder to predict.
- Strategic Realignments: To mitigate the adverse effects of tariffs, companies may pursue acquisitions that allow them to internalize supply chains or access new markets less affected by trade barriers.
- Regulatory Scrutiny: Heightened trade tensions often lead to increased governmental oversight of cross-border deals, especially those involving industries deemed critical to national interests.
Historical Instances of Tariffs Affecting M&A
Case Study 1: U.S.-China Trade Tensions (2018-2019)
The escalating trade dispute between the United States and China during 2018 and 2019 had a pronounced impact on global M&A activities. The U.S. imposed tariffs on Chinese goods, prompting retaliatory measures from China. This environment of uncertainty led to a decline in cross-border deals, particularly large-scale acquisitions. According to EY, the value of announced transactions worldwide fell by 35% in the third quarter of 2018 compared to the previous quarter, with the number of new deals at its lowest since 2013.
Chinese acquisitions of U.S. companies saw a dramatic decrease, with spending dropping from $55.3 billion in 2016 to just $3 billion in 2018. This decline was partly due to increased regulatory scrutiny and national security concerns, leading to the rejection of several high-profile deals, such as Ant Financial’s proposed $1.2 billion acquisition of MoneyGram.
Case Study 2: U.S. Steel Tariffs and Industry Consolidation (2002-2003)
In March 2002, the U.S. government imposed tariffs of up to 30% on imported steel to protect domestic producers. While these tariffs were intended to bolster the U.S. steel industry, they also led to significant consolidation within the sector. Financier Wilbur Ross capitalized on the situation by acquiring bankrupt steel companies, including LTV Steel and Bethlehem Steel, forming the International Steel Group (ISG). This consolidation culminated in ISG’s acquisition by Mittal Steel in 2005, creating the world’s largest steel company at the time.
Current State of Tariffs in 2025
As of April 2025, the global trade environment has been significantly disrupted by a series of newly imposed tariffs initiated by the United States under President Donald Trump. On April 2, 2025, termed “Liberation Day,” the U.S. announced a baseline 10% tariff on all imports, with substantially higher rates for specific countries: 46% on Vietnam, 20% on the European Union, 32% on Taiwan, and an increase of 34% on China, elevating its total tariff to 54%. Canada and Mexico faced a steady 25% tariff. These measures reversed decades of low-tariff agreements established in the late 20th century, raising the average U.S. tariff rate to 22.5%, the highest since 1909.
Global markets reacted negatively, with significant drops in stock values and the U.S. dollar, prompting warnings from economists about potential recessions in multiple economies. In response, over 50 countries have sought trade negotiations with the U.S., while others, including China and the EU, have implemented or threatened retaliatory tariffs, escalating fears of a prolonged trade war.
Future Outlook: Where Tariffs May Lead Global M&A
Looking ahead, the trajectory of these 2025 tariffs could follow several potential paths:
- Prolonged Trade Tensions and Economic Fragmentation: If tariffs remain or escalate, the world may see a long-term decoupling of major economies. This could lead to the formation of regional trade alliances and a decline in cross-border M&A. Deal flow may shift toward intra-regional transactions where regulatory and political alignment is more stable.
- Strategic Reshoring and Consolidation: Companies may increasingly turn to reshoring and vertical integration to manage supply chain risks. This could result in a wave of domestic M&A activity in sectors like manufacturing, energy, and infrastructure. The early 2000s steel consolidation in the U.S. is a historical parallel.
- Diplomatic Resolutions and M&A Rebound: There is still the possibility that these tariffs serve as a negotiation tool, leading to new trade deals. If tensions ease, the M&A market could rebound quickly, as suppressed valuations and pent-up demand drive a resurgence in cross-border transactions.
Conclusion
Tariffs have a profound influence on global M&A activities, introducing complexities that affect deal valuations, strategic planning, and regulatory considerations. Historical examples underscore the necessity for companies to remain agile and proactive in navigating the challenges posed by tariffs. The newly imposed 2025 tariffs are already reshaping global deal-making, and how companies adapt, through regional pivots, consolidation, or diplomatic engagement, will define the next era of international M&A.