What Clients Should Consider in Their M&A Due Diligence Regarding Trade Tariffs

As global trade dynamics continue to evolve, businesses of all sizes must remain proactive in understanding the implications of trade tariffs. Whether you are importing raw materials, exporting finished goods, or engaging in cross-border investments, tariffs can significantly impact your bottom line, operational strategy, and compliance obligations. Businesses must analyze how they can mitigate risks related to tariffs, as well as optimize their global trade practices. Below are key due diligence considerations and potential risks to be aware of.

Understand the Tariff Environment of Each Jurisdiction

Tariff rates and classifications can vary dramatically depending on the country of origin or destination. Businesses should:

• Review current tariffs applicable to the products they import or export.

• Monitor ongoing trade negotiations and disputes that could lead to new or increased tariffs.

• Consider how regional trade agreements (e.g., USMCA, CPTPP, EU trade agreements) may affect duties and eligibility for preferential treatment.

Classify Products Correctly Under the Harmonized Tariff Schedule (HTS)

Misclassification of goods can lead to underpayment or overpayment of tariffs, as well as potential penalties. Clients should:

• Conduct a comprehensive product classification review with trade counsel or customs brokers.

• Document the rationale behind classifications to support their positions during audits or inquiries.

• Stay updated on classification rulings and guidance from relevant customs authorities.

Evaluate Supply Chain and Country of Origin Implications

Tariffs often target specific countries, making country of origin determination a critical component of due diligence. Key considerations include:

• Whether manufacturing or assembly operations confer a new origin.

• Risks associated with transshipment practices, which may be scrutinized or penalized.

• Exploring alternative sourcing or manufacturing locations to mitigate exposure to high-tariff jurisdictions.

Incorporate Tariff Risks Into Contractual Agreements

Contracts should allocate tariff-related costs and risks clearly between parties. This may include:

• Tariff adjustment clauses allowing renegotiation or price increases if tariffs change.

• Indemnity provisions related to misclassification or origin errors.

• Clearly defined Incoterms, which determine responsibilities for customs clearance and duties.

Assess Financial Impact and Planning Strategies

Tariffs can affect pricing, margins, and competitiveness. Clients should consider:

• Customs valuation strategies, including treatment of assists, royalties, and transfer pricing.

• Duty drawback or refund programs where applicable.

• Whether tariff engineering—modifying products or packaging—may result in lower rates.

Stay Compliant with Evolving Regulatory Requirements

Non-compliance with tariff regulations can result in penalties, shipment delays, and reputational harm. Businesses must:

• Maintain robust recordkeeping systems for customs documentation.

• Train employees on customs and trade compliance procedures.

• Conduct internal audits and mock customs exams to assess readiness.

Conclusion

Trade tariffs are more than just a line item on an import invoice—they are a dynamic legal and operational risk factor that demands proactive management. At Oberman Law Firm, our M&A and regulatory compliance attorneys help our clients navigate the complexity of tariffs, ensure compliance, and safeguard your global business interests.

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