How U.S. Trade Wars and Tariffs May Impact Your Business Sale
In today’s global economy, no business operates in a vacuum. Trade policy, particularly in the form of tariffs and trade wars, can significantly influence business performance, valuation, and ultimately, the decision to sell. While national headlines often focus on diplomatic disputes and economic data, the ripple effects reach all the way to Main Street. For owners contemplating a business sale, understanding how tariffs and trade tensions could affect timing, valuation, and buyer appetite is critical.
Understanding Trade Wars and Tariffs
A trade war typically begins when one country imposes tariffs or other trade barriers on another country's goods, and that country retaliates with similar measures. In recent years, the U.S. has engaged in notable trade disputes with countries like China, the European Union, and Canada, targeting industries such as steel, aluminum, technology, and agriculture.
Tariffs are essentially taxes on imported goods. They raise the cost of foreign products, ideally to protect domestic industries. However, they also have the side effect of increasing prices for consumers and businesses, especially those reliant on global supply chains.
Impact on Supply Chains and Costs
For businesses that rely heavily on imported materials, equipment, or components, tariffs can directly increase the cost of goods sold (COGS). Even if your business doesn’t import products itself, your suppliers might. The result is often a cascading increase in prices, squeezing margins.
These cost pressures can hurt profitability—a key metric buyers use to value a business. In industries like manufacturing, automotive parts, construction, and technology, where global sourcing is the norm, tariff-induced cost increases can erode EBITDA and deter potential acquirers or lead to lower sale prices.
Buyer Uncertainty and Valuation Risk
Buyers are looking for predictable, stable cash flows. Trade wars introduce uncertainty about future costs, pricing power, and supply chain stability. If tariffs are in place or could be reintroduced under future administrations, buyers may factor that risk into their valuation models.
In some cases, buyers may delay acquisitions entirely until trade tensions ease or until they can more accurately assess how long-term profitability might be affected. This added layer of geopolitical uncertainty can prolong deal timelines and complicate negotiations.
Industry-Specific Effects
Manufacturing: Highly exposed to trade policy due to dependence on raw materials and components from overseas. A manufacturer using imported steel or aluminum may face rising costs and competitive pressures.
Retail and Consumer Goods: Tariffs on imported goods can affect pricing strategies and inventory costs. If your business sells imported goods, tariffs could reduce margins or force you to pass on costs to customers, impacting demand.
Agriculture and Food Processing: Retaliatory tariffs from other countries can hurt exports. If your business relies on international customers or farm inputs, sales may decline or costs may increase.
Technology and Electronics: Components sourced from Asia may become more expensive, and global supply chain disruptions can delay production and delivery.
Each industry reacts differently, but in all cases, buyers will be closely scrutinizing how tariff risks affect financial performance and the business's resilience.
Timing the Sale
If your business is currently weathering the effects of trade-related disruptions, timing becomes a strategic decision. Some owners choose to sell before margins erode further, while others may delay to rebuild EBITDA and present a stronger financial picture.
The key consideration is how your industry and business model are positioned to handle external shocks. If you're nimble, have pricing power, or have diversified your supply chain, you may fare better in a sale process. Demonstrating a clear strategy to mitigate trade risk can enhance buyer confidence.
Strategic Buyers vs. Financial Buyers
Different types of buyers interpret trade risks differently:
Strategic Buyers (other companies in your industry) may see tariffs as an opportunity to consolidate and control more of the supply chain. They might pay a premium if your company helps reduce their dependency on foreign goods.
Financial Buyers (such as private equity firms) tend to be more valuation-sensitive. If trade risks are inflating COGS or adding complexity to operations, they may lower their offer or request more favorable deal terms to offset the perceived risk.
Understanding the buyer's perspective helps you position your business accordingly.
Legal and Deal Structuring Considerations
In a trade-sensitive environment, buyers often include protective deal terms:
Earn-outs may be used more frequently to bridge valuation gaps caused by tariff-related uncertainty.
Working capital adjustments may become more contentious, especially if inventory values fluctuate due to global pricing instability.
Indemnity provisions could be expanded to include liabilities related to tariff compliance or export/import practices.
Being prepared to negotiate these elements shows sophistication and can help maintain deal momentum.
The Role of Due Diligence
Buyers will scrutinize:
Your supply chain and vendor contracts
Historical margin trends during previous tariff periods
Price elasticity of your products
Inventory turnover and purchasing strategies
Anticipating these questions and preparing solid documentation can smooth the diligence process. It also provides an opportunity to demonstrate that your business is well-managed and capable of adapting to changing external pressures.
Positioning the Business for Sale
If you decide to move forward with a sale, positioning your business as resilient to trade disruptions will be essential. Tactics include:
Diversifying suppliers to reduce single-country dependence
Locking in long-term pricing agreements
Improving inventory management to optimize cash flow
Highlighting domestic customer bases or contracts
Demonstrating agility in adjusting pricing and sourcing strategies
Buyers want to see not just current performance but also how a business adapts under stress.
Communicating with Buyers
It’s important to be transparent about how trade policy has affected the business. Hiding or downplaying these factors may backfire during diligence. Instead, focus on how your team responded to challenges. Did you find alternative suppliers? Renegotiate terms? Improve forecasting accuracy?
A narrative of proactive leadership and resilience will resonate with serious buyers who understand that every business faces external shocks.
Final Thoughts
Trade wars and tariffs are part of a broader landscape of geopolitical risk. While they are outside your control, how you prepare for and respond to them is not. If you're considering selling your business, evaluating how these forces affect your specific situation—and taking steps to address them proactively—can make the difference between a smooth, successful transaction and a deal that stalls or falls short of your expectations.
Whether trade tensions continue or abate, the ability to tell a clear story about your business's resilience and future potential is what will drive value in the eyes of a buyer. Plan accordingly, and your business will be well-positioned regardless of what headlines may come next.
