INSIGHT

The effects of tariffs on business valuations 

May 16, 2025

Services: Business Valuation

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Tariffs—taxes imposed on imported goods—are a powerful tool in international trade policy. While they are often used to protect domestic industries or retaliate against unfair trade practices, their ripple effects extend far beyond trade balances and consumer prices.  

One of the less immediately visible, but critically important consequences of tariffs, is their impact on business valuations.  This is a very important issue in the current economic landscape, given the Trump Administration’s levying of tariffs on many foreign trading partners. The tariffs themselves have been uncertain, as the Administration has indicated a desire to reach firm agreements with as many nations as possible in the coming months. The ultimate deals and tariff terms remain fluid and uncertain as of the print of this article. Both the tariffs themselves, and the uncertainty surrounding them, can have a material impact on business performance and ultimate valuations.  

Given the volume of international trade, the impact may be far-reaching. China, the U.S.’s largest trading partner, saw increased tariffs of between 40% and 70% after a decrease in levied tariffs after the two countries reached a 90 day pause on tariffs of up to 145%, with the goal of continuing to negotiate a long-term trade agreement.  The issuance of new tariffs on major trading partners has resulted in increased volatility in both the equity and bond markets, with significant uncertainty remaining through mid-May 2025, as only a handful of tentative agreements have been reached.   

6 ways tariffs can materially impact business valuations 

Below are a few ways tariffs can have a material impact on business valuations. 

1. Revenue and profitability disruptions 

Tariffs can directly affect a company’s cost structure. For businesses that rely on imported raw materials, components, or finished goods, tariffs increase input costs. These higher costs may not be able to be fully passed on to consumers, especially in competitive markets, leading to compressed profit margins. Reduced profit margins compress valuations. 

• Example: A U.S.-based electronics manufacturer importing components from China may face a 25% tariff, increasing production costs and reducing net income. 
• Impact on Valuation: Lower profitability reduces earnings multiples and discounted cash flow (DCF) valuations, leading to a decline in overall business value. 

2. Supply chain reconfiguration costs 

To mitigate tariff exposure, companies often restructure their supply chains—shifting production to tariff-exempt countries or sourcing from domestic suppliers. While this may reduce long-term risk, it involves significant short-term costs, including capital expenditures, retraining, and logistical adjustments.  The bottom line is that shifting supply chains and building manufacturing facilities takes a significant investment of time, planning and financial resources.  These changes often have both short-term and long-term implications on value. 

• Impact on Valuation: These transitional costs can reduce free cash flow and increase operational risk, both of which negatively affect valuation models.  Higher operational risks would likely increase a company’s cost of capital.  Lower earnings would lead to lower stock prices and lower multiples. 

3. Market uncertainty and investor sentiment 

Tariffs introduce uncertainty and raise perceptions of risk in the business environment. Investors dislike unpredictability, especially when it may affect future earnings. Trade tensions can lead to volatile stock prices, reduced investment, and a higher discount rate applied to future cash flows.  US markets have reflected this increase in volatility since the tariffs were introduced. 

• Impact on Valuation: Increased risk perception leads to higher required rates of return, which lowers present value in DCF models. 

4. Competitive positioning 

Tariffs can alter the competitive landscape. Domestic firms may benefit from reduced foreign competition, potentially increasing market share and pricing power. Conversely, firms that rely on exports may suffer from retaliatory tariffs, losing access to key markets. 

• Impact on Valuation: For protected industries, valuations may rise due to improved margins and growth prospects. For export-reliant firms, the opposite is often true.  The takeaway here is that the ultimate effect of tariffs on valuation is going to be company/industry specific and will require diligent unpacking in valuation processes. 

5. Sector-specific effects 

The impact of tariffs varies significantly by industry. For example: 

• Automotive and electronics: Highly globalized supply chains make them vulnerable to tariffs. 
• Agriculture: Often targeted in retaliatory tariffs, affecting export revenues. 
• Steel and aluminum: May benefit from protectionist tariffs but face higher input costs if they rely on imported machinery. 
• Software: While digital goods aren’t necessarily tariffed, SaaS products are dependent on an interconnected system of semiconductors, cloud infrastructure and semiconductors, all of which will be effected. 

6. Mergers and acquisitions (M&A) 

Tariff uncertainty can delay or derail M&A activity. Buyers may demand lower prices or walk away from deals if tariff exposure is high or difficult to quantify. 

• Impact on Valuation: Reduced deal activity and lower acquisition premiums can depress market valuations, especially for companies seeking strategic exits. 

Navigating tariff uncertainty with valuation guidance 

Tariffs are more than just a trade policy tool—they are a material valuation variable. Their effects permeate through cost structures, investor sentiment, and strategic planning. For investors, analysts, and business leaders, understanding the nuanced impact of tariffs is essential for accurate valuation conclusions and sound decision-making. From a valuation perspective, it is critical for practitioners to be thoughtful in assessing both the short-term and long-term implications of changes in tariffs and understand how companies plan to mitigate the effects on their operations moving forward. 

BPM’s experienced Valuation team can help navigate this uncertainty with customized, defensible valuations that account for tariff impacts across your supply chain, competitive positioning, and strategic growth plans. Our analysts provide the advanced insights needed to make informed decisions in even the most complex and volatile trade environments. Whether you’re evaluating M&A opportunities, reporting for tax purposes, or strategic planning in response to changing tariff structures, BPM delivers the comprehensive valuation experience needed to protect and maximize your business value.  

Contact our Valuation team today to start the conversation about safeguarding your company’s value in an evolving global trade landscape.