Navigating M&A Transactions Amidst Trump’s Tariffs: Five Key Legal Issues to Consider in Today’s Market

The introduction of tariffs under the Trump Administration—and their subsequent partial (yet perhaps temporary) rollback—has added a new layer of complexity and a great deal of uncertainty to the high-stakes world of M&A transactions, as the market enters what is likely to be a challenging second quarter. There are several key practical issues that legal teams must consider when executing an M&A transaction in light of the ever-evolving tariff environment, including new and heightened areas of risk during the due diligence process, allocating closing risk through material adverse effect (MAE) clauses and related conditions to closing, and other critical transaction components. This Legal Update provides practical guidance to help dealmakers considering an M&A transaction in the near-term better understand how parties on both sides of the transaction must carefully weigh the impact of these tariffs and effectively manage the associated risks.

1. Key Due Diligence Considerations

While trade risks and compliance have always been an aspect of the due diligence process, the Trump Administration’s announcement of sweeping tariffs on US imports—and the threat of retaliatory tariffs on US exports—significantly magnifies the importance of robust trade due diligence as part of any M&A transaction. Trade due diligence is particularly important for deals involving manufacturing and global supply chains, such as the chemicals, automotive, steel, wine and spirits, consumer goods, industrial equipment, pharmaceuticals, agricultural products, and home building industries, just to name a few. The legal teams for both buyers and sellers must work with their respective financial advisors and deal principals to evaluate tariff impacts on the target business, including the financial models used to value the target business, since the impact of these new tariffs will not appear in historical financial statements. The due diligence will need to cover all aspects of the supply chain, including the impact on the cost and availability of raw materials, components and other supplies; the cost of goods sold (COGS); and the impact on demand for the target business’s products, as well as the indirect affects on demand likely to be caused by tariffs in downstream end markets.

Because the Trump Administration’s position on tariffs is constantly evolving and many countries have threatened to impose retaliatory tariffs, this due diligence exercise is extremely challenging and somewhat speculative. For example, while broad exemptions currently exist for many major chemicals, these exemptions could be modified or eliminated in the future.

a. Impacts on Cost and Availability of Raw Materials, Components, and Other Supplies

Cross-disciplinary legal teams for both buyers and sellers will need to analyze the likely impact of tariffs on the cost and availability of raw materials, components, and other supplies used to make the target business’s products. Trade counsel should be engaged to determine what tariffs apply (or are likely to apply in the future) to the materials themselves. An in-depth understanding of the target business’s current supply chain is essential. This should include evaluating potential alternative supply chains, such as sourcing from countries with no or more favorable tariffs, to mitigate the impact of applicable tariffs. Corporate counsel should review the target business’s supplier contracts to assess who bears any increased costs resulting (directly or indirectly) from current or future tariffs and to evaluate the parties’ contractual commitments and obligations to purchase and supply such materials in light of changing tariffs (e.g., would the text of the applicable force majeure provision potentially provide one of the parties with at least a temporary excuse not to perform under the contract?).

b. Impacts on Cost and Demand for the Target Business’s Products

Similar considerations apply to the target business’s own products and its customer relationships. Trade counsel will need to determine if any tariffs apply (or are likely to apply in the future) to the target business’s products. This should involve a detailed analysis of the product portfolio, manufacturing locations, customer base, exports markets, applicable tariffs, and potential exposure to retaliatory tariffs. The analysis should also consider whether there are any competitors who will be placed at a competitive advantage as a result of changes in applicable tariffs. Corporate counsel should analyze the target business’s customer contracts to determine who bears the increased costs of tariffs and to evaluate the parties’ contractual commitments and obligations to purchase and supply such products.

c. Potential Indirect Impacts of Tariffs Applicable to End Markets

Even if tariffs do not directly apply to the target business’s products, indirect impacts may arise from tariffs on downstream products or end markets. For example, in the chemical industry, if a target business produces polyethylene used in plastic bottles, tariffs on products packaged in plastic bottles could indirectly result in reduced demand for the target’s polyethylene.

Considerations should include identification of major downstream end products and markets to which the target’s products flow, analysis of what tariffs apply (or are likely to apply in the future) to such end products and markets, and assessment of potential shifts in market dynamics that could alter the demand for the target business’s products.

More than ever, legal teams will need to coordinate their due diligence findings with their respective financial advisors and deal principals to ensure that the implications of their legal findings are taken into account in the financial modeling and valuation process.

2. Allocation of Closing Risk: MAE Clauses and Related Conditions to Closing

In addition to a heightened focus on due diligence, we expect increased attention on MAE clauses and related closing conditions, as these are key tools for deciding which party bears the risk of the target business’s performance declining between signing and closing due to changing tariff regimes. MAE clauses are largely designed to protect the buyer in an M&A transaction from significant negative changes in the target’s business that arise between signing and closing and that fundamentally alter the rationale for entering into the transaction.

Sellers aim to limit the scope of what constitutes an MAE to avoid triggering the clause unnecessarily and to avoid bearing the risk of adverse events that are not specific to the target business or that are outside of the seller’s control. They do so by negotiating exclusions from the definition which cannot be taken into consideration when determining whether an MAE has occurred, such as the impacts of changes in general economic conditions, changes affecting the industry as a whole (rather than just the target), or changes in law. We have already seen some sellers attempting to negotiate exclusions for tariff-related impacts from MAE definitions, effectively shifting the risk of adverse effects stemming from tariffs to buyers.

Buyers, on the other hand, prefer to restrict the number of exclusions to the MAE definition, which makes it easier for buyers to terminate the transaction by asserting that an MAE has occurred—and, therefore, that the “no MAE” closing condition cannot be satisfied. In particular, buyers want to avoid MAE exclusions that would ignore events that have a disproportionately adverse effect on the target business compared to other businesses in the industry. Sophisticated buyers may rely less on MAE provisions and seek to negotiate more specific closing conditions addressing tariff-related contingencies. Of course, their ability to do so will largely depend on the amount of leverage they possess in the negotiations.

3. Expanded Representations and Warranties

Legal teams for buyers should consider seeking—and sellers should expect to see an increased demand for—representations and warranties regarding the raw materials, components, and supplies used by the target business. These representations and warranties could include details on the scope and source of such materials and any known or potential changes in key supplier relationships. Buyers should also seek robust representations and warranties about the impacts on costs and demand for the target business’s products. Additionally, buyers may request enhanced protections through specific representations and warranties related to tariff compliance.

The legal team for sellers should review all of the representations and warranties to consider whether any disclosure relating to the changing tariff regimes is necessary. For example, the standard “No Undisclosed Liability” representation—stating that the target has no liabilities except those reflected on the balance sheet or incurred in the ordinary course of business since the most recent balance sheet date—requires careful consideration, and may require disclosure regarding liabilities arising from recent tariff developments.

4. RWI Policy Exclusions Relating to Tariffs

Representations and warranties insurance (RWI), which covers breaches of the seller’s representations and warranties discovered after the closing, was used in a significant number of private-target M&A transactions before the Trump-era tariffs took effect.¹ A number of insurers are already responding to tariff-related uncertainties by imposing new, and increasingly broad, tariff-related exclusions to RWI policies. Policyholders should carefully review draft RWI policies and any proposed exclusions. Buyers who are obtaining RWI policies will want to seek to narrow any proposed exclusions as much as possible and will need to demonstrate that they have performed fulsome due diligence on tariff-related risks. To the extent any exclusions remain, buyers will need to consider whether to seek specific indemnities from the seller. Their ability to do so will depend on the buyer’s leverage and deal dynamics.

5. Business Pricing Once Again a Key Uncertainty, Reminiscent of COVID-Era Instability

The impact of tariffs has created significant challenges for financial forecasts and valuations. Reliance on historical financial statements (typically covering the past three years) during due diligence provides limited utility when valuing businesses with global supply chains in the current environment, as these fail to capture how the new tariff regime will impact the target business’s financial performance.

These uncertainties mirror the instability experienced during and shortly after the COVID-19 pandemic, when earnout provisions became increasingly common to bridge valuation gaps. Buyers may propose earnout structures that provide additional consideration if negative consequences fail to materialize over time. These contingent payment mechanisms require precise language, particularly regarding which tariff-related expenses should be classified as ordinary versus extraordinary. Without clearly defined accounting standards and metrics, even minor classification differences in tariff costs can determine whether earnout targets are achieved, potentially triggering significant financial consequences and post-closing disputes.

Conclusion

As the M&A market navigates this challenging landscape of sweeping tariffs and market turmoil, these new complexities require both buyers and sellers to adopt more nuanced approaches to transaction structuring and risk allocation. As business financial forecasts become increasingly uncertain due to these economic and political changes, it is imperative for parties to engage in comprehensive negotiations and seek expert counsel to mitigate these risks effectively. Ultimately, the evolving nature of Trump-era tariffs and fluctuating approaches to transaction elements underscore the importance of adaptability and strategic planning in the ever-changing M&A landscape.

¹ For private-target deals that closed in 2024, SRS Acquiom’s 2025 M&A Deal Terms Study reports that 42% of the deals it tracked used RWI, and Deal Point Data reports 46%.