Trump Deregulation: Legal Impacts on M&A and Capital Markets

Abstract

The re-election of Donald Trump to the presidency of the United States has reignited debates regarding the regulatory landscape governing mergers and acquisitions (M&A) and capital markets.

The Trump administration’s policy agenda continues to emphasise deregulation, economic nationalism, and a revision of international trade norms. While these initiatives are framed as catalysts for economic growth, they simultaneously create significant legal and operational challenges.

This article critically examines the implications of Trump-era regulatory policies on M&A transactions and capital markets, paying particular attention to the broader legal, financial, and political frameworks influencing these sectors.

Introduction

The Trump administration’s deregulatory approach seeks to reshape the legal architecture of financial regulation, prioritising short-term economic growth and corporate autonomy over the safeguards introduced post-2008. This has profound implications for both domestic and cross-border M&A, and the broader functioning of the capital markets.

There is a tension between deregulatory ambitions and the realities of market volatility and geopolitical risk. By interrogating the interplay between these factors, this article aims to provide a nuanced understanding of Trump-era regulation and its effect on global dealmaking and capital markets.

Deregulation and its Implications for Capital Markets

Easing Capital Reserve Requirements

Central to the Trump administration’s approach is the relaxation of capital reserve requirements mandated by the Dodd-Frank Act. As noted by Reuters, these requirements, introduced after the 2008 financial crisis, aimed to enhance systemic stability by ensuring banks held sufficient liquid assets, such as cash or government securities, to cover short-term liabilities and withstand financial shocks. 

The administration’s proposed reforms, however, signal a shift toward encouraging financial institutions to deploy capital more aggressively, particularly in the context of M&A activity. Key changes include easing capital and liquidity requirements for mid-sized banks, reducing stress test frequency, and raising the asset threshold for systemically important banks, exempting more institutions from stricter oversight.

The legal ramifications of this approach are significant. While proponents, such as JPMorgan’s Jamie Dimon, argue that reducing capital constraints will facilitate investment and corporate acquisitions, critics such as Democratic Senator, Elizabeth Warren, contend that such measures could erode financial safeguards and expose markets to systemic vulnerabilities. This tension underscores a broader debate over the appropriate balance between regulatory oversight and market liberalisation.

From a legal perspective, the proposed changes may necessitate a reassessment of fiduciary duties, risk allocation in transactions, and the role of regulators in overseeing financial institutions.

Tax Policy and Corporate Investment

The continuation of tax reforms, including those incentivising the repatriation of foreign earnings, is another cornerstone of Trump’s economic strategy. For example, Trump has proposed an extension of his ‘Tax Cuts and Jobs Act of 2017’ which reduced the corporate tax rate to 21 per cent and introduced a one-time lower tax rate on repatriated earnings. As Janus Henderson Investors highlights, these reforms aim to increase the liquidity available to multinational corporations, potentially driving M&A activity.

However, the interaction between tax policy and corporate governance raises complex legal questions. For instance, the strategic deployment of repatriated funds in M&A transactions may heighten scrutiny under antitrust laws, particularly in highly concentrated sectors such as technology, telecommunications and healthcare, where market concentration is already significant.

Trade Policy and Political Risk in M&A

Tariffs and Cross-Border Transactions

The Trump administration’s use of tariffs as a tool of economic nationalism has significantly impacted the legal framework for cross-border M&A. For instance, recent tariffs targeting Canada and Mexico, including a 25 per cent tariff on imports and a 10 per cent tariff on Canadian energy products - though temporarily paused - highlight the volatile nature of trade policy.

According to Baker McKenzie, heightened political risk stemming from tariff regimes has complicated due diligence processes and altered the structuring of international deals. Companies must now account for the potential imposition of tariffs in assessing valuation and risk exposure, while also navigating increasingly complex regulatory reviews by U.S. authorities.

The extraterritorial application of U.S. trade policies raises additional concerns for multinational corporations. Commercial lawyers advising on cross-border deals must address not only the immediate commercial implications of tariffs but also their potential to trigger disputes under international trade agreements and investment treaties. This dynamic underscores the importance of crafting legally robust transaction structures that account for geopolitical volatility.

The Impact of Regulatory Uncertainty

As observed by the Financial Times, Trump’s often unpredictable regulatory posture has introduced volatility into the M&A landscape. Uncertainty regarding future trade agreements, tax policies, and regulatory enforcement priorities has prompted many companies to adopt conservative approaches to dealmaking with the underwhelming pricing of Venture Global’s listing on the New York Stock Exchange, coupled with a near 30 per cent decline in the number of deals and 18 per cent fall in deal values compared to January 2024. From a legal perspective, this environment necessitates heightened attention to contractual safeguards, including the use of material adverse change (MAC) clauses and other provisions designed to allocate political and regulatory risks between parties.

Trump’s deregulatory approach has not diminished the importance of antitrust enforcement in the M&A context either. In fact, the administration has shown a willingness to intervene in high-profile transactions, particularly where issues of national security or market concentration are at stake. Lawyers must navigate an increasingly complex regulatory environment, balancing the Trump administration’s pro-business rhetoric with its demonstrated willingness to enforce competition laws aggressively.

Sectoral Implications and Market Trends

Uneven Sectoral Impact

The legal implications of Trump-era policies vary significantly across sectors. Industries such as technology, energy, and industrials have benefited from deregulatory measures, while those reliant on global supply chains, such as automotive and consumer goods, face greater operational challenges. As Skadden notes, these divergences reflect the uneven impact of economic nationalism on different market segments, with significant implications for antitrust enforcement and compliance obligations.

ESG Considerations in a Deregulatory Environment

Despite the Trump administration’s deregulatory agenda, environmental, social, and governance (ESG) considerations remain a prominent factor in M&A and investment decisions. The growing emphasis on ESG metrics among investors and global regulators contrasts sharply with the Trump administration’s anti-regulatory stance. 

This divergence creates legal and strategic challenges for companies as they navigate balancing ESG commitments with compliance requirements, particularly in jurisdictions or under administrations where ESG priorities face reduced emphasis or shifting regulatory landscapes. Companies must also account for global investor demands and international standards, which may conflict with U.S. domestic policies.

Conclusion

The regulatory landscape under Donald Trump’s presidency presents a complex mix of opportunities and challenges for M&A and capital markets. While the administration’s deregulatory agenda and tax reforms have the potential to spur economic activity, they also introduce significant legal and regulatory risks. Lawyers must grapple with the implications of a rapidly evolving policy environment, balancing the opportunities presented by deregulation with the need to safeguard against systemic vulnerabilities and geopolitical uncertainty.

Image by Aditya Vyas via Unsplash