Tariffs Cause Tension

How trade levies and geopolitics are influencing deal terms and reshaping global M&A strategies

In 2025, tariffs, geopolitics and national security considerations moved from the periphery to the centre of the global M&A landscape – particularly in light of the US administration's declared economic security priorities, including trade renegotiations and extensive tariff actions, and the continued expansion of foreign direct investment (FDI) and export control regimes worldwide.

These developments had a significant impact on the cross-border deal environment and continue to have a strong impact in 2026. Governments are increasingly factoring these considerations into their decision-making, which has resulted in greater risk and incidence of transactions being "called in" for review, even where they do not meet the necessary thresholds. However, these geopolitical changes also mean that cross-border transactions are even more critical for market expansion and diversification and in seeking to secure supply-chain resilience.

US: A new international strategy forcing strategic re-evaluation

In the US, trade and national security policy have become as relevant to deal terms as financing conditions and commercial diligence. The current US administration's National Security Strategy, published in November 2025, delineates the administration's roadmap to protect its economic security through balancing trade, securing access to critical supply chains and materials, reindustrialising and reshoring to the US, building resilient infrastructure, revising its defence industry, and protecting the dominance of its financial and traditional energy sectors.

The resulting re-imposition, expansion and oscillation of tariffs in 2025, alongside strengthened export controls, has introduced a layer of unpredictability into valuation modelling and target selection.

Buyers now scrutinise and stress test supply-chain exposure and resiliency, customer bases, and pricing structures in granular detail, conscious of the potential for further policy tightening. Even traditionally domestic transactions are being analysed through a geopolitical lens, as many US businesses remain reliant on tariff-exposed inputs. This has prompted:

• Increased use of tariff-adjustment mechanisms in purchase agreements.
• Expanded MAC definitions capturing abrupt policy changes.
• Covenants obliging sellers or target groups to manage, restructure or relocate parts of their supply chain pre- or post-closing.
• Reverse break fees linked to regulatory outcomes.
• Delays as parties wait for greater policy certainty before launching transaction processes.

As the paradigm in Washington shifts to one that disfavours globalism, free trade, and governance through administrative and regulatory states or through transnational organisations, the relationship between the US private sector and US government is expected to evolve. For example, US embassies have been instructed to identify strategic acquisition and investment opportunities in their host countries/regions for US companies, to help those companies compete and succeed, including by using US government financing. How this policy will be brought to fruition remains to be seen.

In merger control, we have seen more comments made publicly by the US administration about ongoing merger reviews, introducing an additional layer of unpredictability, despite a generally more permissive stance. The Committee on Foreign Investment in the United States (CFIUS) continues to vet deals from a national security perspective: although the Nippon Steel/US Steel merger was initially blocked, it was later cleared subject to commitments. A new 'Reverse CFIUS' outbound screening regime has also been introduced, although currently this is limited only to US investment into specific technologies in China designed for military use. And the US is showing itself to be more interventionist on global deals even where there is no obvious US nexus.

Transactions involving advanced manufacturing, semiconductors, AI-adjacent software and critical minerals faced heightened scrutiny in 2025, impacting cross-border deal flows – and that is sure to continue in 2026.

The China dimension and impact on Asia

The interplay with China continues to be one of the most consequential variables in cross-border dealmaking. Technology, data-rich assets and critical infrastructure continue to face significant inbound and outbound restrictions. Buyers in Europe, Australia and the US are carrying out deeper diligence on structures and flows that are exposed to Chinese export controls or technology transfer restrictions. For Chinese buyers, there is increased scrutiny from some regulators, sometimes making it harder to do deals.

We are, however, seeing an uptick in investment flowing into markets in the Middle East, Africa, India and Southeast Asia, including Vietnam, South Korea and Indonesia. Chinese companies have been expanding their investment footprint in Southeast Asia to diversify supply chains and tap into the growing consumer market. Others are also investing into these markets as part of their 'China Plus One' risk management strategy. Understanding the diverse regulatory frameworks across Asia and exploring potential strategic partnerships are key for investors' success in expanding into these markets.

China remains open to inbound foreign investment, with a shortened negative list. However, there may be more national security scrutiny on sensitive technologies or industries. Geopolitical dynamics will continue to shape multinational companies' strategies in China, leading to market repositioning and business restructurings. For outbound investment, tightened export‑control and technology‑related requirements – particularly around critical minerals and advanced technologies – may add complexity to Chinese governmental approvals for Chinese investors. Effective navigation of the evolving regulatory regimes and careful planning will be critical to successful dealmaking.

UK: National security and US tariffs meet deal flow

The UK continues to balance an ambition to remain an attractive hub for international investment with a more assertive national security regime. The National Security and Investment Act (NSI Act) has now embedded itself firmly within the M&A process, influencing deal timetables particularly where deals involve tech, defence, energy or advanced materials. On the other hand, the Competition and Markets Authority (CMA) has been given a mandate by the UK government to seek to promote growth and investment in its mergers policy, where possible. In 2025, we saw:

• More transactions being notified voluntarily under the NSI Act where parties anticipated a risk of call-in.
• Buyers pricing in the timetable and outcome uncertainty inherent in an NSI review.
• Various initiatives from the CMA to try to make its process and decision-making more predictable going forward.

At the same time, US tariffs continue to impact pricing, sourcing and operations. UK buyers are now interrogating targets with significant US-facing exports or US-dependent supply chains which could be affected by future tariff rounds. This has translated into more granular diligence on tariff pass-through models and exposure to further US protectionism. This transatlantic linkage will continue to impact execution strategy in 2026, particularly for deals in sectors caught between industrial policy priorities on both sides of the Atlantic.

Continental Europe: Defensive positioning and regime complexity

European corporates, particularly in Germany, have reacted to the shifting US landscape with a more cautious risk orientation. For export-driven industries – including automotive, industrial machinery and chemicals – US tariff policy has become an external factor that can erode the commercial logic of deals involving US-exposed targets.

At the same time, screening of foreign investments is taking a very prominent role in many European capitals as well as at the heart of the EU in Brussels. Economic security has become an essential part of the EU's trade policy. FDI screening is not carried out at an EU level but the EU has established a regime to encourage co-ordination of FDI screening taking place at a national level. This regime is now being toughened and, if adopted as expected in 2026, it will make it mandatory for every EU member state to have a screening regime in place and partially harmonise national rules by establishing minimum requirements (as to what sectors ought to be covered), as well as allowing for more co-ordination between national governments and the EU. Many European governments continue to strengthen their own FDI screening frameworks or, as in the case of Germany for example, are planning to do so. This has led to:

• A need for early analysis and to co-ordinate multi-regime filing strategies.
• Greater emphasis on remedies-planning early in the transaction lifecycle.
• Heightened scrutiny of investors from "friendly" countries where the assets are particularly sensitive.

European sellers are increasingly accommodating 'regulatory flex' in deal negotiations – recognising that buyers may require more time or more extensive co-operation to navigate approval processes. In many cases, buyers are also seeking a higher degree of conditionality.

Australia: Geopolitical realignment and a more active FIRB

Australia is seeing its own version of geopolitical recalibration. Its strategic significance in critical minerals, clean-energy inputs and regional supply-chain diversification has drawn renewed inbound attention.

In October 2025, the US and Australia signed the 'Framework for Securing of Supply in the Mining and Processing of Critical Minerals and Rare Earths', highlighting the opportunities for Australia that this geopolitical realignment presents. The Framework formalises the critical minerals partnership between the US and Australia, promising to see investment in, and acceleration of, critical minerals supply.

Against this backdrop, the Foreign Investment Review Board (FIRB) is increasingly proactive in responding to foreign direct investment into Australia. While overall they have been facilitative of investment that is in the national interest, FIRB and the Treasurer have been willing to assert themselves in acquisitions, as evidenced in Cosette's proposed acquisition of Mayne, which was not approved as one of Mayne's Australian pharmaceutical manufacturing sites was to be closed by the buyer. For sensitive cases, FIRB has taken time in its deliberation and also displayed a greater willingness to impose detailed conditions. These factors have made regulatory analysis a central feature of deal planning.

Looking ahead to 2026

The direction of travel suggests that many of the pressures seen in 2025 will intensify in 2026:

• Tariff-aware deal architecture will become standard, with buyers seeking contractual mechanisms to buffer against policy volatility.
• Supply-chain resilience will remain a core strategic driver, prompting acquisitions of assets capable of anchoring regionalised or de-risked operating models.
• Cross-border megadeals will face the greatest friction, while domestic and "friendly-jurisdiction" transactions will be prioritised.
• Merger control will continue to be subject to political intervention.
• FDI regimes will continue to increase in number and scope and even buyers from "friendly" countries will be placed under scrutiny.
• Sectors positioned as geopolitically strategic – critical minerals, infrastructure, defence, energy and data-rich industries – will continue to attract concentrated activity.

Global M&A has entered an era in which geopolitical and regulatory considerations are not simply variables in the background but central determinants of deal feasibility. 2025 showed that successful execution now requires the ability to anticipate political shifts, navigate complex multi-jurisdictional regulatory pathways and incorporate tariff and supply-chain resilience directly into deal terms.

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