SkyLaw’s Annual M&A Guide Published in Chambers

The impact of tariffs

In last year’s edition of our Chambers guide, we wrote that “the prospect of a second presidency for Donald Trump raised the possibility of increased tariffs and trade wars, resulting in greater uncertainty for business”. For the most part, businesses shrugged off the risk. Markets soared through 2024, businesses expanded and deals kept getting done. M&A activity in Canada was set to continue to improve in 2025 as interest rates fell and investor confidence improved.

On taking office, President Trump followed through on his threats and announced a 25% tariff on all Canadian goods. He said that he would lift them if America could annex Canada. Since then, the United States announced significant tariffs, and then paused some, on dozens of countries. The basis for the tariffs is bizarrely random. Famously, the United States imposed a 10% tariff on all exports from Heard Island and the McDonald Islands, which are home to four kinds of penguins but no humans. The widespread havoc of the illogical and, as many consider, illegal, whipsaw tariffs caused a global stock market crash and raised a very real possibility of a global recession.

The challenge, above all, is that the nature and extent of the tariffs are still unknown. It makes planning incredibly difficult. Tariffs can cause significant damage to an economy. Productivity, wages and economic growth are likely to fall while prices rise to absorb the tariffs and the disruptions to supply chains. Moreover, the threat alone of tariffs can cause such significant uncertainty that M&A activity is impacted. In this case, the spectre of a trade war is animated by Mr Trump’s desire to annex Canada, opening the door to potentially significant changes in all areas of the USA–Canada relationship.

Canadians are taking the threat of annexation seriously. The result is a dramatic change in the level of cross-border business and tourism. On March 27, 2025, the new Canadian Prime Minister Mark Carney announced to the world that Canada’s “old relationship” with the United States is over.

What to do about the economic uncertainty

In our guide, we provide concrete steps to take in transaction documents in light of the tariffs and turmoil. Many of the considerations are the same as those that were discussed at the time of the COVID-19 disruptions. When drafting M&A agreements, the parties will need to negotiate the allocation of the risk of escalating and punitive tariffs and other government actions, such as anti-American procurement practices.

Concern about predatory investments

In March, the Canadian government updated the guidelines to the Investment Canada Act to include the potential of an investment to undermine Canada’s economic security as a factor to consider for the government in making determinations about whether an investment will be subject to national security review. The stated concern is that in the “rapidly shifting trade environment” (a delicate way of referring to the trade war), some Canadian businesses could see their valuations decline, making them susceptible to opportunistic or predatory investment behaviour by non-Canadians. When these businesses are important to Canada’s economic resiliency due to their size, their impact on the innovation ecosystem, or their place in Canadian supply chains or those of allies on whom Canada relies, the Canadian government has taken the position that it would run counter to Canada’s interest to allow them to fall victim to this type of behaviour to the detriment of Canada’s national security.

The announcement did not identify US investors specifically so it is likely that all non-Canadian investors will be subject to this additional factor in the course of the foreign investment review process. Foreign acquirors of Canadian companies or assets should prepare for increased closing timelines in the event the ICA approval process becomes more aggressive.

The new opportunities for investment in Canada

Canada is rethinking pipelines and other major economic investments. Interprovincial trade barriers are finally coming down. Military and defence spending in Canada is set to soar. The trend to “friend-shoring” that started after Russia invaded Ukraine is likely to continue, with a question mark over the United States as it appears to be an increasingly unreliable trading partner, particularly in highly integrated industries such as the automotive industry. We are experiencing a generational economic disruption creating vast opportunities for investment.