The ever-changing trade policy landscape under President Donald Trump, as detailed in Bloomberg Law, is adding a layer of complexity to mergers and acquisitions (M&A). The imposition of tariffs, guided by Trump’s America First Trade Policy memorandum, is compelling businesses to reassess traditional approaches to M&A, particularly in sectors with intricate supply chains. The administration has leveraged the International Emergency Economic Powers Act, resulting in tariffs against multiple trading partners, impacting sectors like automotive, aerospace, and pharmaceuticals.
Furthermore, the administration’s expansion of tariffs under Section 232 of the Trade Expansion Act includes not just raw materials but extends to consumer products derived from steel and aluminum, as well as imported automobiles and parts. As these tariff actions continue to unfold, businesses involved in M&A must adopt a proactive stance on valuation, taking into account potential tariff liabilities.
One of the primary challenges for M&A participants is conducting thorough due diligence. This includes examining the target company’s import history and assessing potential successor liability risks. Buyers are advised to focus on high-risk imports that might have previously benefited from exclusionary measures like the China Section 301 product exclusion. Moreover, any ongoing federal inquiries or import compliance records should be reviewed scrupulously to identify potential legal and financial liabilities.
Sellers and target companies, on the other hand, are encouraged to explore tariff mitigation strategies as part of their pre-due diligence activities. Options such as obtaining binding rulings from US Customs and tweaking tariff-related language in agreements can serve as valuable tools to navigate these challenges. Another approach could involve exploring carve-outs from tariffs, as some provisions allow for duty-free treatment or exemptions under agreements like the US-Mexico-Canada Agreement.
The shifting dynamics brought on by these trade policies underscore the necessity for businesses to be agile and informed. Without adequately accounting for these variables, M&A transactions risk being undervalued or overly costly due to unforeseen tariff implications. In this fluid environment, legal professionals must remain vigilant and integrated into the ongoing discussions around trade, leveraging operational strategies to mitigate risks and capitalize on opportunities. As these developments unfold, the need for adaptation becomes not just advantageous but essential.