
M&A Trends: How Tariffs Shape the Deal Landscape in 2025
As 2024 transitions into 2025, M&A activity is on the rise with significant capital ready to be deployed. Among the many factors influencing transactions, the impact of tariffs on M&A has emerged as a critical consideration. Understanding the specific effects of tariffs on various sectors and the downstream impact on valuations and the due diligence process is essential for buyers and sellers in today’s dynamic market.
The Growing Demand for U.S. Manufacturing Businesses
Short-Term Impacts of Tariffs on Manufacturing
While uncertainty persists around the nature and extent of potential tariffs—whether targeting specific industries or commodities— the introduction or adjustment of tariffs inevitably increases the cost of imported goods.
Key short-term effects include:
- Higher Prices & Reduced Margins: Supply chain costs rise thus squeezing margins.
- Increased U.S. Manufacturing Demand: Domestic manufacturing is expected to see a surge in demand. While this activity could create capacity constraints in the short term, manufacturing capacity is likely to increase in the coming years, leveling out the demand.
Historical Context: Lessons from 2019
During the first significant round of tariffs in 2019—primarily on imports from China—companies shifted to alternative sourcing from countries such as India, Europe, Mexico, and Canada. However, these alternatives often came at higher costs compared to pre-tariff imports.
Economic Effects of Tariffs
Tariffs implemented under the Trump and Biden administration resulted in:
- Higher producer prices
- Reduced manufacturing jobs
Despite intentions to boost local manufacturing, these measures showcase the nuanced effects of such policies and the failure to achieve the desired outcomes.