How are you thinking about tariffs

March 04, 2025

by a searcher from INSEAD in Montreal, QC, Canada

With recently announced tariffs in North America, how are you thinking about tariffs? Is it all about sharing the risk with the seller via earn-out? Thanks!

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Reply by a professional
from University of Toronto in Toronto, ON, Canada

^redacted‌ , this is a time of international economic warfare where the U.S.A. has declared economic war on Canada. This is not the time to be thinking of doing deals and wondering how to mitigate macro-economic tariff risk via seller earn-outs.

There is no satisfactory mechanism - seller notes, elevated discount rates or anything else - that is sufficient to mitigate the risk of the impact from U.S. tariffs. They will materially disrupt your revenue, supply chains and operating costs, and also your customers' revenue, supply chains and operating costs. Historical buyers of your products may well not be future buyers. This is the time to avoid deal-making.

You are a civilian in a warspace where the warriors are nation states: Canada and the U.S.A. Every participant in the M&A dealspace in this macro environment runs the terminal risk of becoming collateral damage.

Today (March 11, 2025), President Trump unleashed harsh rhetoric against Canada, threatening to ruin Canada economically and reiterating his intention for Canada to become the 51st state. On "X", Trump said he will make Canada pay "a financial price so big that it will be read about in History Books for many years to come."

Hunker down! Do not engage in this volatile and risky market! Be patient and gather market intelligence for the future when opportunities have a more attractive risk/reward profile!

Reply by a searcher
from Humber College in Toronto, ON, Canada

^redacted‌ thank you for the tag. From a Canadian perspective... Onshoring is arguably a good direction for manufacturing to be heading in although this abrupt application of high tariffs does not make a lot of sense. If the US administration had clearly mapped out new tariffs that would increase by a small amount quarterly over the span of several years, supply chains could be (and would be) reworked to be more domestic and companies would have time to invest in US manufacturing. This approach is most likely a blunt tool which will lead to renegotiating trade agreements. Saying all that, an upside for Canadian companies that sell within Canada there's a major "buy Canada" sentiment right now that's not going away any time soon. There's also a global shift right now with the US becoming seen as an unreliable trade partner. I believe this will lead to stronger trade alliances between Canada and the EU, there might be opportunity here. A downside is that there's a very high risk of a recession in Canada if the tariffs remain. Regarding the OP's question, it is really situation dependant. I wouldn't be looking at buying a company making parts for the automotive supply chain for example. It might be a great time to own a company making an all Canadian food or beverage product.

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