Trump’s Tariffs Pose New Dangers for Mergers and Acquisitions

The interplay of new tariffs and new merger and acquisition activity, including private equity, is poised to create a perfect storm of higher risks in M&A deals.

Trade policies from President Donald Trump are forcing businesses and advisers in M&A transactions to proactively assess the effect of tariffs on valuation and identify potential tariff liability.

Trump’s America First Trade Policy memorandum presents an expansive vision to use new or expanded tariffs. In its first three months, under the International Emergency Economic Powers Act, the administration has taken tariff actions against all trading partners, including against the country’s largest trading partners—Mexico, Canada, China, and the European Union.

Though the IEEPA tariffs essentially apply to all products, the tariffs particularly affect major sectors with complex supply chains, such as automotive, aerospace, pharmaceuticals, machinery, food and beverage, energy, and electronics.

The administration also expanded tariffs on steel and aluminum products from all countries under Section 232 of the Trade Expansion Act. These tariffs apply not only to raw or semi-finished steel and aluminum products, but also to “derivative” articles, including consumer products such as kitchenware, furniture, and sports equipment. Also, under Section 232, the administration has imposed tariffs on imported automobiles and auto parts.

There are more tariff actions on the horizon, such as investigations into imports of copper, timber, semiconductors, and lumber, and review of antidumping and countervailing duty regulations that may result in duty rates substantially higher than both IEEPA and Section 232.

Valuation and Mitigation

Parties in an M&A transaction must take a forward-looking approach in accurately valuing a target company in the context of new tariffs and in considering ways to mitigate tariff risks.

For buyers and investors, there are several practical methods for conducting due diligence on the future effect of tariffs on target companies, including:

Reviewing Harmonized Tariff Schedule codes. The steel/aluminum and auto tariffs, for example, list certain articles that are subject to tariffs under these codes. Likewise, antidumping and countervailing orders list HTS codes in the “scope” language to ease duty collections. HTS codes are critical pieces of data that should be requested up front from target companies.

Conducting a rule-of-origin analysis. Target companies may tout a shift of its supply chain to mitigate tariffs, but often the rule-of-origin analysis fails to prove the “substantial transformation” test, leading to higher tariffs. Buyers should request explanations of supply chain shifts to assess if the rule of origin is satisfied.

For sellers and target companies, evaluating tariff mitigation options should occur even before due diligence. If successfully executed, tariff mitigation can be included as a selling point to prospective buyers. Examples of such strategies include:

Binding rulings. Companies may obtain binding rulings from US Customs and Border Protection on a wide range of prospective import issues, such as origin, valuation, and tariff classification. Obtaining a favorable ruling on prospective imports can help reduce uncertainty involving current and future tariffs.

Carve-outs from new tariffs. IEEPA tariffs currently allow for duty-free treatment for most tariff provisions found in Chapter 98 of the HTS, such as certain goods that are exported and then returned. Additionally, the IEEPA Mexico and Canada tariffs currently exempt merchandise qualifying under the US-Mexico-Canada Agreement.

Work out tariff-related language in agreements. In supply agreements, target companies may want to negotiate shipping terms to mitigate liability for tariffs as “US importer of record.” For sales agreements, importers may want to negotiate language to allow for certain price increases due to unforeseen tariffs.

Due Diligence

Businesses in an M&A transaction must look at the target company’s import history to assess any potential successor liability risks.

Courts have held that corporate successors, even in asset sales, may be held liable for their predecessors’ customs liabilities on imports as far back as five years. Buyers and investors need to examine:

High-risk imports. Has the target paid little to no tariffs, for example, by relying on a China Section 301 product exclusion? These high-risk imports should be prioritized for review to ensure the imports were truly eligible for the product exclusion.

Federal inquiries and investigations. Obtaining records of past Customs and Border Protection requests for information, notices of action, or similar inquiries may reveal that the company is soon to be, or already is, under CBP investigation. Discovering legal issues before an investigation affords a company the opportunity to file a prior disclosure to protect against significant monetary penalties.

Import compliance program. Does the target have written import compliance procedures, or does it instead rely solely on its customs broker or freight forwarder? Having written procedures doesn’t guarantee the importer is free of issues, but they may indicate the importer had controls in place to prevent costly errors, or at a minimum, they can serve as a mitigating factor in a CBP enforcement action.

The evolving landscape of M&A faces heightened risks as new tariffs intersect with deal-making. The administration’s trade policies, leveraging the IEEPA and Section 232 tariffs, are driving businesses to reassess valuations and mitigate potential tariff liabilities. With ongoing investigations and the possibility of even steeper duties, M&A transactions—particularly in sectors with complex supply chains—must navigate an increasingly fluid trade environment.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Luis Arandia, Jr. and Clinton Yu are partners in Barnes & Thornburg’s international trade practice, focusing on customs and import regulations, export controls, and sanctions.

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