Corporate Finance Advisors
The United States has launched tariffs under the Trump regime, and possibly future regimes, to counteract its decline as the world’s leading superpower. These tariffs impact valuation of any business engaged in global trade. To value such businesses, one must consider where the business operates, and whether that jurisdiction adjusted (i.e., Australia or Ireland, etc.), complied or negotiated a deal (i.e., the EU, Japan, U.K. and others), or retaliated (i.e., China or Canada).
This classification is not fixed: a country that retaliates under one period of a dispute or government may comply or negotiate under another, and vice versa; the EU’s own shift from prepared retaliation to a deal is one example. In Canada, the U.S. imposed 50 per cent Section 338 tariffs on Canadian goods effective Aug. 22, 2026, and Canada responded with matching countermeasures on nearly 900 U.S. product categories effective Sept. 8. The question for valuators and M&A advisers is no longer whether tariffs matter to value. It’s who absorbs the cost.
Value is a function of future discretionary cash flows. Tariffs complicate this because, unlike a discrete shock, a tariff regime is layered, sector-specific, retaliatory and politically reversible; sometimes within the same quarter. The most useful way to think about them is that small/moderate tariffs often behave like a tax, while large tariffs can become a trade barrier that changes the structure of the market itself. Temporary changes in tariff policy (particularly on large tariffs) create significant uncertainty and lower business valuations primarily through the added risk.
Different industries are affected by tariffs differently:
At relatively modest tariff levels, trade often continues much as before. The tariff gets divided among the supply chain depending on bargaining power and price elasticity. Economically, this looks like an indirect tax, usually causing some combination of higher prices, lower real consumption, and margin compression. Tariffs can increase the cost not only of finished goods but also of intermediate inputs. Businesses may therefore experience higher inventory costs, freight and logistics costs, wage pressure, replacement capex and working-capital requirements. Even where percentage EBITDA margins remain stable, the business may require more capital to generate the same physical level of activity.
Large tariffs are fundamentally different. Once tariffs become very large — 50 per cent, 100 per cent or more — the analysis changes. They cease behaving primarily like a tax and begin behaving like a restriction on trade. Responses can be changes in sourcing to non-tariffed countries, manufacturers relocating production and permanent changes in market share. There is also the potential for significant one-time capex to effect these changes — which can result in a full restructuring of the business model or supply chain.
The winners when tariffs are implemented are domestic producers. The losers are foreign companies impacted by tariffs. When tariffs are targeted at specific countries and not others, foreign producers in non-tariffed countries may also benefit. Further, one must differentiate between tariffs on finished goods and tariffs on production inputs. The latter will not protect the domestic producer who requires those inputs to the same extent as the former will.
Policy uncertainty itself reduces valuation. Investors expect to be compensated for assuming risk. If tariff policy is expected to frequently change, the business cash flows are inherently riskier, thus the valuation should be less, all else equal. Any risk premium added to the discount rate should be limited to risk not already captured in the forecast cash flows; applying both to the same exposure would double count the risk and understate value. Further complicating the analysis, comparable company EBITDA or earnings multiples can become misleading between countries if tariff policy is materially different.
A business with brand equity may be able to pass through most of a tariff increase; a commoditized, price-competing business usually absorbs it into margin. Scenario analysis — tariff continuation, tariff rollback, escalation — is more defensible than valuations created from a single forecast.
For countries that are negotiating or retaliating, there are upside and downside scenarios to consider for M&A advisers, and they are uneven. An upside scenario may consider foreign or domestic investment into certain industries in the mid to long term such as metals and minerals, energy, advanced manufacturing, infrastructure, etc. Downside scenarios may have to consider what competition does as ecosystem or supply chain risks may have rapidly evolved. A business that has nearshored or diversified suppliers may show a temporary capex spike that should be normalized (unless the spend has not yet occurred), followed by an improved cost base. Tariff exposure should be modelled industry by industry and province by province, not as a single national assumption. A Canadian-based business may face a widening structural disadvantage invisible in its own historical financials but relevant to normalized forward earnings.
Buyers now scrutinize supply chain geography, tariff pass-through clauses, relocation cost and timeline, and customs bond adequacy. Tariff-driven reinvestment reduces free cash flow relative to insulated businesses, which command a premium compared to those affected by tariff policies. Dislocation works both ways. Sellers face compressed multiples; buyers face targets mispriced for permanent impairment that’s actually temporary, provided the determination is defensible at the valuation date.
Financing remains available but sector-discriminating. This is true with corporate acquirers who with increased uncertainty may change rates of return, and/or require additional margin of safety, require a greater return on equity, particularly for companies operating in vulnerable industries. Lenders may also view entities similarly increasing the overall costs of carrying debt and further increasing the risk of the company. As a result, M&A advisers may reassess their assumptions surrounding the weighted average cost of capital and resulting capitalization rates.
Ultimately, not every tariff is paid at the border. Some are paid at the valuation or sale date.
Abhi Mathews is a principal at Minerva Valuations, where he advises clients on business valuations, litigation support, mergers and acquisitions, and financing matters. He has assisted courts in Ontario, Alberta, Delaware, Florida and other jurisdictions in matters involving valuation and litigation support. He has qualified as an expert witness in numerous occasions. Recently he has also served in a management and board capacity of a NASDAQ-listed issuer in the sports management sector. His professional affiliations include the American Institute of Certified Public Accountants (BV), the American Society of Appraisers, the Canadian Institute of Chartered Business Valuators, CFA Institute and FINRA.
Glenn Rogers is a managing director at Minerva Valuations, where he advises clients on business valuations, mergers and acquisitions, corporate finance and related advisory matters. He has more than 20 years of experience in corporate finance as an adviser and investor in the North American marketplace. He serves in a governance capacity, including as a board member for the Canadian Home Builders’ Association - Central Okanagan.
This article was originally published in Law360 Canada on September 28, 2026. It is for general information purposes and is not intended to be and should not be taken as legal advice.
