Five × Five: Five Questions And Five Legal Remedies Against Reciprocal Tariffs

Implications of tariffs in M&A transactions

Introduction

The Trump II administration's tariffs – whether as "reciprocal tariffs" or as part of political "deals" – are currently one of the most discussed topics in cross-border trade. For M&A, this means a new, structurally different uncertainty: supply chains are becoming more expensive or unstable, sales markets are shifting and margins are coming under pressure. But uncertainty does not mean unpredictability. This Insight highlights the key implications of tariffs on M&A transactions and answers five questions on how buyers and sellers can shape their business with MAC clauses, earn-outs, joint ventures, interim covenants and warranties & indemnities.

Question 1: What functions do tarriffs have in connection with M&A?

Tarriffs are not an investment control – they do not act via an approval or prohibition regime like FDI screenings. In M&A, they rather unfold indirect but transaction-relevant functions: They make imports more expensive and thus create protective spaces for domestic production; they serve fiscal interests (foreign trade taxes) and are used as leverage in "reciprocal deals" to negotiate export advantages. At the same time, "Trump tariffs" provide targeted incentives to relocate production and FDI to the USA. This means for deal practice: Business models with a high import quota are becoming more fragile, re-shoring and near-shoring strategies are gaining in value – and valuation, deal rationales and contract technology are changing as a result.

Question 2: What specific impact do tariffs have on M&A?

Tariffs cause an erosion of trust between the parties because planned and comparative values falter. This becomes visible in declining transaction volumes or in longer, tougher processes. At target level, tariffs reduce profitability (cost of goods, working capital requirements, price enforcement), make valuation more difficult and shift pricing mechanisms. Due diligence therefore requires an extended set-up: in addition to Financial & Commercial DD, Trade & Customs DD (HS codes, preferential origin, Incoterms, broker set-ups), Tax DD (customs and excise duties, transfer pricing cascades) and Legal DD (compliance, sanctions and export control reference). New, "defensive" elements – such as special adjustment clauses, earn-out mechanisms or reporting obligations – are emerging in contract design in order to allocate tarriff risks in a targeted manner.

Question 3: Which companies are particularly affected?

Traditional industrial and manufacturing sectors, mechanical engineering, automotive suppliers and parts of the pharmaceutical value chain are disproportionately affected if preliminary products are sensitive to tariffs. The direct effect is often less pronounced in tech, IT, software and parts of the healthcare services segment (excl. pharma). Geographically, companies with a focus on EMEA currently tend to be considered more attractive, while strong US exposure or supply chain relationships with high-customs countries are seen as more problematic. The precision of the supply chain analysis is crucial: Where do tariffs actually arise (terms of delivery/incoterms)? Which HS classifications are disputed? Which proofs of preference are reliable? How sensitive are gross margins in tariff scenarios of +5 / +10 / +25%? Those who answer these questions early on within the framework of an M&A transaction will gain certainty in their assessment – and thus negotiating power.

Question 4: What contractual options are there to counteract negative tarriff effects?

MAC clause (Material Adverse Change/Effect). Customized customs MACs that explicitly focus on the supply chains of the target company make sense. In contrast to "industry-wide effects", a general exclusion should not apply here. The MAC should be linked to a right of withdrawal before closing and linked to objectifiable tests (e.g. completion of an audit cycle, defined EBITDA thresholds) – ideally coordinated with price adjustment/closing accounts.

Earn-outs. Earn-out mechanisms shift part of the valuation to the post-closing phase if tariff effects materialize over 1-2 audit cycles. EBITDA-based basket models with defined normalizations (filtering out "pure" tariff effects) or – even more precisely – KPI sets (e.g. gross profit or net margin bands per region/product line) are possible. Important: Opposing effects (e.g. price enforcement) must be properly addressed so that no one-sided arbitrage effects arise.

Joint ventures. A JV can be a smart alternative to a 100% acquisition – especially for strategic investors – in order to share tariff risks, build up local production or secure market access. This only works to a limited extent with financial investors; in terms of antitrust law, a JV is often more complex than a full acquisition.

Interim covenants. Between signing and closing, increased information and reporting obligations make sense: ongoing tariff monitoring, reporting thresholds for tariff changes, obligation to implement appropriate measures to reduce tariff exposure (always in compliance with antitrust law). A clear governance roadmap with an escalation mechanism is worthwhile here.

Warranties and indemnities. Extended "no undisclosed liabilities" regulations that address customs and excise tax items in the financial statements are essential; as a rule, they end at signing/closing at the latest (bring-down disclosure). W&I insurability is possible, but depends on the data situation, classification reliability and DD depth; whether tax warranties are included must be clarified at an early stage.

Question 5: Will such tariffs lead to the end of M&A transactions?

No. Tariffs increase complexity, but they are manageable. The recipes for success are: (a) robust review and – where necessary – relocation of critical supply chains; (b) safeguarding of non-critical production, locations and logistics paths; (c) clean identification of conflicting objectives with de-risking programs and FDI regimes; (d) proactive stakeholder management, including political and regulatory contacts; (e) carve-outs of non-strategic, tariff-sensitive activities prior to the M&A process to reduce valuation noise; (f) preparedness on the seller side: Vendor DD materials with tariff heat maps, scenario analyses and evidence of classification/preference. If you do this homework, you will remain capable of transacting even in a tariff regime.

Conclusion

Tariffs are not a black box. They act as price and structural parameters – and that is exactly how they should be treated in the M&A process. With a targeted expansion of due diligence, clear valuation and scenario analyses as well as tailor-made contract technology, risks can be reliably allocated and opportunities – for example through re/near-shoring – actively leveraged. For sellers, a clean tariff story increases deal security; buyers protect themselves with smart earn-outs, MAC designs and interim governance. This creates predictability again – despite political volatility.

We have been supporting complex cross-border transactions for years – from supply chain analysis and evaluation to the implementation of tailor-made clauses. If you want to secure an ongoing transaction, reassess a target in light of new tariffs or "tariff-proof" your supply chain before a process: Talk to us and let us facilitate your transaction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.