Trump’s Tariff War Drags Down Deals Work in Subdued M&A Market

New US tariffs and a growing trade war are weighing down an already sputtering global deals market.

Mergers & acquisitions transactions for the first two months of the year were down 21% compared to last year, dropping to $434.2 billion, according to Bloomberg data. The total number of deals during that stretch was the lowest in at least five years, taking the wind out of the sails for M&A dealmakers who expected an influx in transactions after President Donald Trump moved into the White House.

The slowdown stems in part from the threat of tariffs on imported goods from Canada, Mexico, and China, deals lawyers said. New levies that went in place on March 4, and more potentially to come, have caused uncertainty for businesses. They’ve also prompted valuation questions, especially for companies heavily exposed to tariff-struck regions.

“How do we value those operations abroad until we have the full picture on tariffs?” said Neil Barlow, an M&A partner at Clifford Chance who focuses on cross-border deals. “We are starting to get clarity around certain countries, but how far reaching this will be remains uncertain, as does the impact domestically in the US from retaliatory tariffs.”

While deal work is slower than expected, lawyers seen an uptick in client demand on national security, export control, and sanctions, among other topics, said Chase Kaniecki, a partner at Cleary Gottlieb who advises on international trade and national security.

“Under the Biden administration, we didn’t really do much tariff work, but now that’s going to come back,” he said. “It’s not unusual to get three new clients every day asking what these tariffs are and how they need to think about them.”

A lull fueled by tariff uncertainty prolonged the pause in deals markets during the November election, when some companies held off on transactions until the election was completed. Companies also held off on M&A while waiting for potential interest rate cuts by the the Federal Reserve.

Still, a handful of megadeals were announced in the first quarter and are pending. They include Constellation Energy Corp.'s $16.4 billion purchase of Calpine Corp., which was guided by Kirkland & Ellis and Latham & Watkins; and Johnson & Johnson’s $14.6 billion purchase of Intra-Cellular Therapies Inc., steered by Cravath, Swaine & Moore and Davis Polk & Wardwell.

Mitigating the Damage

M&A practitioners are focusing on mitigating the impact of the new tariffs, or finding ways to circumvent them. Rethinking the location of manufacturer bases, evaluating distribution and supply chains, and weighing M&A targets are common strategies.

Law firms may need to hire more associates, or reallocate them from different practice areas to address these concerns, said Kaniecki. For example, tariffs apply to the country of origin for clients’ products, but those products can travel through several countries in their distribution chain. Pinpointing an origin accurately to determine whether products are impacted by duties can be a nuanced process.

It’s unclear how long the new tariffs will remain in place, even as Trump eyes fresh levies for the European Union.

“In the previous Trump administration, tariffs didn’t cause deals to fall apart, and oftentimes a 10% tariff doesn’t really move the needle one way or another,” said Kaniecki. “It’s more a question of whether the buyer or seller is going to swallow that cost, or if we mitigate the impact of those duties.”

Companies are also likely to seek exclusions to tariffs from the US Trade Representative to skirt the costs. They may have a harder time winning exemptions than in the past.

“It’s likely the number of exclusions is going to be significantly lower,” said William Rowe, an M&A partner at Baker McKenzie in Chicago. “We have to keep in mind that the number of tariffs has increased. If you look at a multinational supply chain, you might not need one exception, you might need four.”

Some companies are taking a longer-term approach to gauging the impact and whether to absorb the costs or make changes to mitigate the impacts.

“Let’s see what happens in the first quarter, second quarter, then third quarter,” he said.