Ripple effects from the U.S. government’s recent tariff actions continue to impact the global economy. In turn, these volatile trade policies have forced dealmakers to reassess the risks of an increasingly political cross-border deal environment. But with M&A on pace to break last year’s value total, how will escalating protectionism affect investor sentiment heading into 2019?
To find out how deal practitioners are responding to the changes in global trade, Mergermarket on behalf of Toppan Vintage spoke with six experts for their insights.
Toppan Vintage question: One of the intended effects of the recent wave of U.S. tariffs has been to boost domestic industry. Do you think the U.S. measures could indeed benefit certain domestic players and thereby increase domestic deal activity? Leading industry experts weigh in...
Drew Bernstein, Co-Managing Partner, Marcum BP says: If higher tariffs become a long-term feature of the economy, rather than a transient factor or bargaining chip, it will cause all kinds of recalibrations. Some companies will benefit. Others will be decimated. The impact really depends on whether the tariffs are combined with restrictions on capital inflows or not. If the flow of capital remains more or less unfettered, domestic dealmaking could increase as companies re-wire their supply chains, as well as move their manufacturing and distribution behind tariff walls.
Theoretically, the tariffs could keep both M&A and restructuring folks busy for a while. However, there's going to be significant costs to the consumer, who is usually the loser in any trade war. The aggregate impact and spillover risks are very hard to calculate; I don't know how anyone could do that. Part of the problem is how long it’s been since we've had a period of rising tariffs. We haven't seen this in a long time, and so the institutional memories on both the right and left have been wiped clean. What we have is a big experiment with an explosive chemistry set.
Jack Bell, Managing Director, Pantek Partners adds: I don't know if the two go hand-in-hand exactly, but I do think tariffs will boost traditional heavy manufacturing industries such as steel. Those industries benefit because there’s a lot of lower-cost, commodity-heavy manufacturing with steel that comes into the country from places such as Asia, which would be dealing with tariffs that obviously weren’t there before.
For industries outside of heavy manufacturing including consumer, technology, healthcare, medical, and biotech, I don't think there will be as much of an effect. At least there hasn’t been to date, in that there haven't been tariffs levied on those types of industries or services.
Ama A. Adams, Partner, Ropes & Gray weighs in: I think it is still too early to tell how the current trade dispute between China and the U.S. will ultimately play out. However, anecdotal evidence currently suggests that for every U.S. company benefitting from the tariff war, there are many more companies facing significant tariff-related costs, which are cutting into profits and forcing them to raise prices or lay off employees. The list of U.S. companies reporting the negative effects of the trade war continues to grow. As such, if the tit-for-tat between the two countries continues to escalate, it is likely we will see a broader impact on industries across the U.S. economy.
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The New Wave of Protectionism
What effect is protectionism having on sentiment among dealmakers? Are the measures actually bolstering domestic M&A? And how is private equity responding to the new conditions? We explore how deal practitioners are responding to the changes in global trade in our full report.