Some cross-border M&A faces a "wait-and-see" paralysis as businesses seek clarity on tariffs. Here is our view of what happens now and when the policy fog lifts.

As trade tensions between the U.S. and China continue to evolve, potential shifts in tariff policies could significantly impact cross-border deal-making. Companies engaged in U.S.-China trade must prepare for multiple scenarios, each carrying distinct implications for sales, profitability, supply chains and valuations.

The tariff war between the U.S. and China escalated to near-embargo levels, with select U.S. tariffs on specific imported Chinese goods previously as high as 145 percent.[1] With severe economic strain affecting both the U.S. and China, negotiations are now under way between the two governments.

The timeline for resolution, however, remains highly uncertain, as trade policies shift almost daily. Analysts and commentators worldwide continue to weigh in, but the path forward remains unclear.

A Potential Deal Freeze?

In 2025, cross-border M&A faces an unprecedented hurdle: How can you move on a deal before the global tariff uncertainty is settled? With President Trump’s tariff announcements being challenged by China’s own countervailing measures, many corporations and PE firms are hitting pause on major China-linked transactions in particular and APAC deals generally. Organizations need to consider the risks of overpaying for an asset that could lose significant value overnight if tariffs spike, or underselling an asset should current tariffs fall.

In the current environment, it is extremely difficult to value companies that are severely impacted by the trade and tariff uncertainty. Assumptions that would normally underpin the valuation methodology can vary day by day and even hour by hour as the trade negotiations play out in real time in social and mainstream media.

Deal paralysis won’t last forever and anticipating the market could provide a competitive advantage. Below, we map select example scenarios that may dictate whether your next deal is a windfall or a write-off.

How Tariffs Could Reshape Deal-Making Between the US and China

Each potential scenario carries varied implications for deal-making. Notably, these are the only three possible scenarios — countless outcomes remain in play. The intent is not to predict the future, but to establish key boundaries and guideposts for what lies ahead:

• A return to Trump 1.0-era 25 percent blanket tariffs would force recalibration of supply chains that had adapted to status quo but could also provide an opportunity to acquire undervalued businesses.[2]
• Applying prohibitive 145–245 percent tariffs could effectively sever major trade arteries and significantly impact enterprise value.[3]
• A campaign-trail promise of 60 percent tariffs[4] might create temporary relief while keeping decoupling pressures intact. Impact on long-term value may be significant but, at this level, some trade is likely to persist albeit with severely squeezed supplier margins and significantly higher prices for U.S. consumers.

Below we analyze these diverging possibilities and what they mean for your next deal.

Return to Trump 1.0 Policies: 25% Blanket Tariff on China Origin Goods

Under this scenario, the U.S. administration reimposes a uniform 25 percent duty on all Chinese imports — a revival of Trump 1.0-era trade policies. China may respond by lifting its retaliatory tariffs on U.S. goods, potentially stabilizing trade conditions. 

Chinese manufacturers may still have a cost advantage at this rate, and deal-making would proceed under renewed certainty. However, this approach does little to address U.S. trade deficit concerns, and bipartisan support for decoupling may limit its appeal. 

Should this option eventuate, opportunities may exist to acquire undervalued businesses, particularly those that were significantly impacted for a period of time by the current embargo-level tariffs. Calculating deal value at this tariff level as the likely outcome has a high level of risk associated with it but may offer upside of a competitive advantage to a buyer with a high-risk appetite.

Effective Embargo-Level Tariffs (145%–245%) on China Origin Goods

While temporary agreement has been reached between the U.S. and China to reduce reciprocal tariffs from as high as 245%[5], if prohibitive tariffs escalate further, trade between the U.S. and China would face near-prohibitive costs. Most industries will see profit margins ominously decline, forcing companies to either significantly restructure supply chains or abandon certain trade flows entirely. Valuations would need to account for significantly reduced sales, reduced profits and higher operational risks.

Should this scenario eventuate, enterprise values of impacted businesses are likely to be severely impacted. If this option becomes more likely, sellers may wish to exit these businesses sooner rather than later, and where divergent views on likely outcomes and risk profiles differ, transactions may continue to proceed; however, there will be winners and losers.

Reduction to Presidential Campaign-Promised 60% Tariffs on China Origin Goods

Many commentators see a more probable outcome of mutual tariff reduction to 60 percent, aligning with President Trump’s 2024 campaign rhetoric. This “middle ground” could be framed as a diplomatic win, balancing trade deficit concerns while maintaining some protectionist measures. 

For deal-makers, this scenario presents both opportunity and complexity. While trade flows would improve, asset valuations would still need to factor in elevated costs and potentially reduced sales compared to pre-tariff conditions. Some market participants likely priced in this scenario in the run-up to and immediately after the election, such that much of the impact may already be reflected in current valuations.

How Do We Deal With the Current Uncertainty?

Uncertainty in international trade is not a new concept and is one that has been heightened by the recent actions and announcements of the Trump administration. We can take some guidance from how companies have dealt with this uncertainty since the first Trump presidency.

Deal-makers in Greater China have operated in "permanent contingency mode" since the Trump-era tariffs of 2018. Over seven years, investors in North Asia have considered three key strategies to deal with this volatility:

1. Bifurcated supply chains (maintaining parallel U.S. and China-facing operations)
2. Tariff-optimized M&A structures (e.g., carve-outs of tariff-exempt product lines)
3. EBITDA adjustments where 15–25 percent tariff costs are baked into valuations as standard

For some investors, Scenario 2 could necessitate a more comprehensive reassessment of long-term business prospects — what potential tariff rate does the model assume? Certainly, 25 percent to 245 percent is an enormous range, and ultimately the variables adopted will depend on one’s reading of the political situation and the risk appetite for the deal.

There is no easy answer here from a valuation perspective. Options include presenting a range of values depending on the assumed tariff, a midpoint of potential tariffs, and a risk-weighted approach. 

What About Southeast Asia?

In contrast to Greater China, Southeast Asia (long a tariff-light beneficiary of trade diversion) now faces its own reckoning. In addition to the U.S.’s reciprocal tariffs, Indonesia’s nickel export bans, Vietnam’s new anti-subsidy duties, and potential reciprocal tariffs on EV components mark a paradigm shift. Where ASEAN once absorbed redirected investment passively, its markets must now navigate:

• First-mover disadvantage (no institutional memory of full-scale trade wars)
• Fragmented policy responses (e.g., Thailand’s auto-sector tariffs vs. Malaysia’s semiconductor neutrality)
• Investor whiplash as supply chains face second-order tariffs (e.g., Chinese firms rerouting through ASEAN now triggering new U.S. duties)

Greater China’s deal-makers treat tariffs as a known variable that may be brutal but quantifiable. Southeast Asia now confronts them as a disruptive new input, rewriting a decade of growth assumptions overnight.

How We Can Help: Navigating Tariff Uncertainty

In this volatile trade environment, strategic foresight and rigorous analysis are critical. A&M assists clients in:

1. Scenario planning to model the financial and operational impacts of different tariff outcomes, ensuring preparedness for any policy shift. 
2. Our risk valuation teams quantify exposure to tariff fluctuations, enabling informed decision-making on investments, supply chain adjustments and market positioning. 
3. For M&A and joint ventures, we enhance deal due diligence by stress-testing target companies’ resilience to trade barriers, assess cost structures and identify mitigation strategies. 
4. We support asset value creation by optimizing sourcing strategies, relocating production where advantageous, and restructuring operations to maintain margins despite tariff pressures. By integrating these approaches, we help businesses not only mitigate risks but also uncover opportunities in a shifting trade landscape.

The Bottom Line: Tariffs Are Now a Core Deal Driver

Tariffs remain a wildcard in cross-border deal-making, with each potential policy shift carrying distinct risks and opportunities. Companies and investors must stay agile, while preparing for scenarios ranging from a full-scale trade embargo to a moderated tariff détente. Those who proactively adapt their supply chains and financial models will be best positioned to navigate the evolving trade landscape.

[1] “Fact Sheet: President Donald J. Trump Secures a Historic Trade Win for the United States,” The White House, May 12, 2025, https://www.whitehouse.gov/fact-sheets/2025/05/fact-sheet-president-donald-j-trump-secures-a-historic-trade-win-for-the-united-states/

[2] “China Section 301-Tariff Actions and Exclusion Process,” United States Trade Representative, and “USTR Statement,” October 18, 2019, https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions

[3] “Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security,” The White House, April 2, 2025, https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/

[4] Rebecca Picciotto, “Trump floats ‘more than’ 60% tariffs on Chinese imports,” CNBC, February 4, 2024, https://www.cnbc.com/2024/02/04/trump-floats-more-than-60percent-tariffs-on-chinese-imports.html

[5] https://www.whitehouse.gov/presidential-actions/2025/05/modifying-reciprocal-tariff-rates-to-reflect-discussions-with-the-peoples-republic-of-china/