New US Administration Policies, including Tariffs, Predicted to Cause Volatility in 2025
The global economic growth at the beginning of 2025 has remained stable, but the outlook for the rest of the year is uncertain due to the implementation of U.S. tariffs. The timing, scale, and scope of these tariffs add a layer of complexity, making the future unpredictable for businesses and investors. This uncertainty stems from previous experiences with tariff pressures that were quickly retracted, leading to market volatility in 2025. As a result, the decision-making process for M&A activities and capital spending plans will be influenced by how seriously these threats are taken and the subsequent actions taken in response.
The threat of new U.S. tariffs is expected to dampen global M&A momentum, slowing down a market that had been gaining traction in late 2024. Companies with exposure to the U.S. may be viewed as riskier, prompting international acquirers to focus on deals within their own regions. Additionally, macroeconomic factors such as tax changes, margin pressures, and cash flow concerns will impact M&A activity. The effects of tariffs will vary by location, with different countries assessing risks differently. Countries like Canada, Mexico, China, and Continental Europe may face more aggressive tariffs compared to the UK. Retaliatory measures from U.S. trading partners with their own tariffs will further complicate the business landscape and potentially impact consumer prices.
Economists believe that broad-based tariffs will lead to inflationary pressures in the initial year of implementation. This poses challenges for the Federal Reserve in determining the timing and extent of interest rate cuts. Prolonged higher rates could negatively affect M&A activities and companies with below-investment-grade credit ratings seeking debt refinancing in the near term.
While U.S. public markets initially surged in mid-February 2025 amid expectations of business-friendly policies, subsequent declines have erased earlier gains. This suggests that investors are factoring in the potential impact of tariffs and the uncertainties surrounding their implementation. Any significant policy changes could trigger further market fluctuations, prompting cautious behavior among investors waiting for clearer signals. Industries likely to be affected by tariffs, including manufacturing, technology, and retail, may need to restructure supply chains or adjust sourcing strategies to mitigate risks and maintain competitiveness.
The impact of U.S. government spending efficiency measures on the economy and national debt trajectory remains uncertain. The administration’s indications of withdrawing support from transnational organizations and international agreements have already prompted global investor capital reallocations. European defense stocks have surged in anticipation of increased government spending to bolster regional defense capabilities.
Amid optimism for an M&A rebound in 2025, concerns over escalating tariffs and potential trade conflicts loom large in the private equity sector. The alignment of buyer and seller expectations, driven by pent-up demand for exits and capital deployment, could be undermined by trade uncertainties. Investors and business leaders are exercising strategic patience as they navigate these challenges, closely monitoring interest rate movements and economic developments.
Overall, the prevailing approach in the face of these uncertainties is strategic patience. Investors and business leaders are closely monitoring developments, waiting for clearer signals before making significant moves in response to the evolving economic landscape.
