Jul 24, 2018

Trade wars may boost M&A activity

Axios Visuals

Curt Moldenhauer, PwC's US China Inbound Leader, tells Axios that the burgeoning trade wars could increase the amount of cross-border M&A:

"Let's assume that a company can no longer easily trade into China or the U.S. but still has a desire to do so for strategic reasons. One option is greenfield investment, like building a plant to skip tariffs, or you can go buy somebody local to do the same thing. These are basically substitution effects for trade."

Moldenhauer says he is using "M&A" liberally here, as it could be anything from a complete buyout to a joint venture to strategic transactions that don't involve any equity (such as certain biotech partnerships that might be encouraged by the Chinese government).

  • "The last big trade war began in the 1970s with the Japanese, when both sides were taking a similar amount of political grief over similar things like trade deficits and investments in sensitive industries... as it played out, Japan became one of the biggest investors in the U.S. economy, including through M&A."
  • Moldenhauer stresses that his is a long-term view as, right now, trade uncertainty is depressing both inbound and outbound deal-flow. "I suspect we'll see a bit of a rough third quarter."

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