Why Tariffs Now Matter for Every M&A Lawyer

The United States has entered a new era of trade policy in 2025, marked by the Trump administration’s sweeping, executive-driven tariffs with foreign trade partners. These measures reflect renewed U.S. unilateralism and a significant retreat from globalization, creating unprecedented volatility for dealmakers: tariffs are imposed, suspended, or increased with little warning, fundamentally altering the risk calculus for cross-border and domestic transactions.

The 2025 tariffs create volatility not seen in a generation, affecting target valuations, purchase price adjustments, working capital metrics, covenants, representations and warranties insurance (RWI) coverage, and certainty of closing—all critical considerations for M&A buyers and sellers alike.

As a result, deal structures have shifted: parties increasingly pursue joint ventures and reshoring strategies to mitigate exposure to market volatility (see U.N. Conference on Trade and Development, World Investment Report 2025; EY, TradeWatch, Issue 1 (2025)).

At the same time, the legal risk landscape has expanded. Unilateral tariffs imposed under domestic statutes such as Section 301 of the Trade Act and the International Emergency Economic Powers Act have created tension between U.S. executive authority and international trade policy, recently tested in the courts (HMTX Indus. LLC v. United States, 86 F.4th 1234 (Fed. Cir. 2025); V.O.S. Selections, Inc. v. Trump, 87 F.4th 567 (Fed. Cir. 2025)).

These developments, combined with heightened CFIUS monitoring and enforcement efforts, have become central to deal planning and diligence (U.S. Department of the Treasury, “CFIUS Enforcement,” Treasury.gov, accessed Oct. 19, 2025).

Heightened exposure to tariff and trade-policy volatility has intensified reliance on earnouts, tariff-linked due diligence, and enhanced representations and warranties carveouts, reflecting a broader shift toward contractualizing economic volatility (Wolf, Coirin & Broitman, “Navigating M&A Transactions Amidst Trump’s Tariffs,” Harvard Law School Forum on Corporate Governance, May 13, 2025). This article explores how the 2025 tariffs affect U.S. M&A and offers practical guidance for lawyers navigating this landscape.

Macro Impact and Opportunities

The cross-border M&A landscape continues to be reshaped by the 2025 tariff regime. Global mid-market deal activity in the first half of 2025 fell by around 14% compared to the second half of 2024 (and 13% versus H1 2024), signaling a shift toward domestic and nearshore investment strategies (BDO Global, BDO Horizons 2025 – Issue 3, Aug. 5, 2025; U.N. Conference on Trade and Development, World Investment Report 2025).

Although aggregate M&A volumes fell in the first half of 2025 compared with the same period in 2024, deal values rose by roughly fifteen percent, reflecting a flight to quality and strategic repositioning (PwC, Global M&A Industry Trends: 2025 Mid-Year Outlook, July 2025). Despite the global decline in activity, foreign companies are establishing a U.S. domestic footprint through greenfield and bolt-on manufacturing acquisitions to mitigate tariff impacts (“Foreign Companies Eye U.S. Expansion to Lessen Fallout from Tariffs,” Reuters, Oct. 6, 2025).

Sectors with Increased Activity

U.S. domestic upstream and “strategic” manufacturing, including semiconductors, advanced manufacturing and critical minerals, have attracted significant investment and concentrated capital flows as companies seek to insulate operations from tariff exposure (World Trade Organization, Trade Outlook 2025: Fragmentation of World Trade, pp. 20–21), as national-security and “America First” domestic production agendas are prioritized (Lee, “Revival of Industrial Policy: Implications for International Trade Law,” Minnesota Journal of International Law, Vol. 34, 2025, p. 237).

Logistics, nearshoring infrastructure, and industrial real estate, particularly across Mexico’s strategic industrial corridors, have also seen sustained demand, as companies seek to optimize production, reduce costs, and secure U.S. market access (Núñez, “Nearshoring in the Age of Tariffs: Why Mexico Remains a Strategic Investment Destination,” CAPSIA Insights, May 12, 2025).

Professional-services firms specializing in customs, valuation, and trade-compliance advisory have likewise experienced rapid growth as corporates recalibrate supply-chain risk. (Grant Thornton, A New Tariff Paradigm: How Businesses Can Respond, Apr. 2025).

Sectors with Decreased Activity

Not all industries have benefited from the current tariff regime. Consumer and retail businesses—including apparel, footwear, electronics, toys, and home goods—have experienced margin compression and demand volatility as import costs rise due to new tariffs ((Yale Budget Lab, The State of U.S. Tariffs, Oct. 17, 2025).

Recent studies find that the 2025 tariff regime continues earlier patterns of shifting the burden of taxation onto domestic consumers and reducing aggregate welfare, as higher import costs suppress real incomes and distort consumption (Penn Wharton Budget Model, The Economic Effects of President Trump’s Tariffs, Apr. 10, 2025, pp. 2–4). These dynamics have produced valuation haircuts and delayed timelines for import-dependent targets (PwC, Global M&A Industry Trends: 2025 Mid-Year Outlook, July 2025).

Life sciences and healthcare device companies that rely on active pharmaceutical ingredients from China and India have also faced cost inflation and sourcing risk, as tariff-driven import costs and supply-chain disruptions have forced healthcare manufacturers to diversify suppliers (Grant Thornton, A New Tariff Paradigm: How Businesses Can Respond, Apr. 2025).

Agribusiness remains particularly exposed to retaliation, with tariffs on soy, pork, and agricultural equipment continuing to distort export markets and depress farm-sector margins (Congressional Research Service, Retaliatory Tariffs on U.S. Agriculture and USDA’s Responses (R48548), May 27, 2025).

The resulting price volatility in commodities and inputs has reinforced a cautious posture across consumer-facing and export-dependent industries (International Monetary Fund, World Economic Outlook, Oct. 2025, Special Feature “Market Developments and Commodity-Driven Macroeconomic Fluctuations,” pp. 35–40).

Supply Chain Issues: Renewed Pressure Due Diligence, Working Capital, and Earnouts

The Trump tariffs, coupled with the closure of the de minimis exemption for PRC imports in Aug. 2025, have forced companies rethink their approach to business and legal due diligence in M&A.

There is renewed focus on stability of supply chains—driving product re-engineering, multi-sourcing, origin shifts, foreign trade zone usage, and pricing realignments, all now core diligence and post-close integration issues. U.S. importers are increasingly considering a ‘China+’ strategy for outbound sourcing, seeking tariff-friendly footprints in Mexico, Vietnam, India, and the European Union (Bain & Company, “From China to Trouble? Swapping Supply Chains Doesn’t Mean Escaping Risk,” Apr. 2, 2025).

In response, M&A Deal structuring has reoriented to these new trade dimensions. The contractualization of policy risk is now becoming standard practice in deal terms.

• Supply chain diversification and transfer pricing alignment now sit alongside audited financials and Quality of Earnings as standard M&A diligence pillars as U.S. companies align with new sourcing rules and tax incentives linked to U.S.-based production ushered in by the One Big Beautiful Bill Act (OBBBA), reshaping U.S.-based multinationals structures (Grant Thornton Advisors LLC, “Valuation, Transfer Pricing and Tax: Strategic Imperatives,” Sept. 30, 2025).
• Working capital negotiations have likewise evolved. Many companies are carrying larger buffers to manage transit risk and policy volatility, which affects leverage ratios and financial covenants. Recent global analyses show that tariff-driven logistics congestion and “just-in-case” inventory strategies are inflating financing needs and compressing free cash flow (BDO Global, BDO Horizons 2025 – Issue 3, Aug. 5, 2025).
• Complex earnouts tied to tariff outcomes, material adverse effect clauses addressing new enactments, tariff risk-sharing covenants, expanded supply chain representations and warranties, and origin and classification covenants with price true-ups are now common practice.

Predictions: What M&A Counsel Should Underwrite for 2025–2026

Elevated effective tariff rates with periodic pauses and selective suspensions are likely to remain the norm. In transactional practice, earnouts, material-adverse-change clauses and pricing adjustments are increasingly calibrated to tariff or supply chain indices, reflecting recognition that regulatory risk must be allocated in deal documentation.

Strategic buyers are simultaneously divesting import-heavy product lines and pursuing platform acquisitions in Mexico, the EU, and Japan to diversify tariff exposure, continuing the regional realignment that now defines global investment flows (U.N. Conference on Trade and Development, World Investment Report 2025; Organisation for Economic Co-operation and Development, Supply Chain Resilience Review 2025).

Congressional testimony also highlights the emergence of financial and insurance instruments designed to hedge tariff-driven volatility (Joint Economic Committee, Trade Wars and Higher Costs: The Case Against Trump’s Tariffs, Dec. 18, 2024), underscoring that policy-linked uncertainty is now a permanent feature of cross-border M&A.

A Playbook for Tariff-Era M&A

The 2025 global tariff environment demands a new playbook for M&A attorneys. This includes:

• Expanded diligence – Due diligence must now extend beyond corporate and financial review to include customs classification and origin mapping, transfer-pricing alignment, supplier audit trails, export control and sanctions exposure, and False Claims Act risk. Tariff and national security measures now sit squarely alongside traditional corporate risk.
• Drafting for volatility – Agreements should anticipate policy swings by incorporating tariff-specific material adverse effect and interim covenants, earnouts linked to tariff or supply chain benchmarks, detailed pass-through mechanics, and robust trade-compliance representations, warranties and indemnities. These provisions convert regulatory uncertainty into defined contractual risk.
• Strategic combinations and spinouts – Parties should pursue structures that “buy” tariff resilience, acquiring or spinning out domestic manufacturing capacity, diversifying sourcing networks, or establishing footholds in Mexico or the EU to capture tariff-mitigation synergies.
• Continuous monitoring of litigation and regulatory developments – Counsel should track ongoing rulemakings and litigation, including IEEPA challenges, Section 232/301 actions, and de minimis reforms, and build automatic adjustment mechanisms that reprice risk as trade policy evolves.

In sum, counsel who integrate the new tariff paradigm realities into valuation, diligence, and documentation are best positioned to navigate, and capitalize on, policy-driven dislocation in the years ahead.

Reprinted with permission from the October 27, 2025 issue of the  New York Law Journal© 2025 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.