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Research findings related to the effects of tariffs on international mergers and acquisitions (M&A) activities reveal a complex interplay where tariffs can encourage or hinder these dealings. Tariffs frequently function as a strategic approach for market entry among firms, encouraging them to pursue cross-border M&A as a means to circumvent trade impediments. Nonetheless, the characteristics of the mergers—be they horizontal or non-horizontal—along with the particular tariff rates, can profoundly affect both the magnitude and direction of this influence.

Tariffs as a Market-Entry Strategy Tariffs can exhibit a positive correlation with cross-border M&A activity, as firms engage in acquisitions to penetrate foreign markets and evade trade barriers. This phenomenon is particularly pronounced when both the acquiring and target nations impose elevated tariff rates, implying that firms are driven by market-entry strategies aimed at overcoming these obstacles. The impetus to evade tariffs and non-tariff barriers constitutes a pivotal motivator for cross-border M&A, as firms endeavor to establish a foothold in international markets and alleviate the expenses associated with arms-length trade.

Differentiated Impact on Horizontal and Non-Horizontal Mergers Trade expenditures, inclusive of tariffs, typically exert a deleterious effect on cross-border M&A activity. However, this influence is markedly less significant for horizontal mergers, which aligns with the tariff-jumping hypothesis positing that firms amalgamate to circumvent tariffs on goods they would otherwise export.

Influence of Trade Liberalization The phenomenon of global trade liberalization, characterized by diminished tariff rates, has been correlated with an escalation in international merger activities. Reduced tariffs foster international mergers, particularly in instances where products serve as close substitutes, thus aligning social incentives with private merger motivations.

Although tariffs may incentivize cross-border M&A as firms endeavor to navigate trade barriers, the relationship is intricate. The nature of the merger and the specific trade policies in effect can substantially modify the dynamics involved. Additionally, other considerations such as volatility in market prices for stocks and bonds, changes in legal regulations, and dominant economic trends are essential in affecting cross-border M&A activities.

Sources

Limas-dominguez, H. (2018). Deal Breaker: How Tariff Barriers Affect Cross-Border Mergers And Acquisitions. https://scholar.colorado.edu/honr_theses/1611/

Vasconcellos, G. M., & Kish, R. J. (2013). Cross-border mergers and acquisitions. 515–524. https://dialnet.unirioja.es/servlet/articulo?codigo=7041229

Görg, H., Hijzen, A., & Manchin, M. (2007). Cross-Border Mergers & Acquisitions and the Role of Trade Costs. Research Papers in Economics. https://ideas.repec.org/p/cpr/ceprdp/6397.html

Ietto-Gillies, G., Meschi, M., & Simonetti, R. (2003). Cross-border mergers and acquisitions (pp. 65–82). Routledge. https://doi.org/10.4324/9780203402313-11

Yildiz, H. M., & Yıldız Ulus, A. (2024). On the Relationship between Tariff Levels and the Nature of Mergers. https://doi.org/10.32920/25365448.v1

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