Tariffs & The Job Market: How the Trade War Will Affect Finance Internships, Jobs, Deals, and Valuations

If you’ve been breathing oxygen over the past few weeks, you’ve now seen approximately 523,861 articles about the trade war, the tariffpocalypse, and how random tweets now move trillions in market value each day.

So… I thought I would add one more feature so you can say you’ve read 523,862 articles about the topic.

This is a follow-up to my 2024 Election article, where I predicted that the Trump administration would be much less “business friendly” than hyperventilating influencers had forecast.

And… U.S. deal volume fell by 13% in Q1, consumer sentiment fell by more than 30% since December, and inflation expectations are now higher.

This doesn’t mean we’re in a recession – just that the outlook is worse than it was at the end of last year.

And now tariffs are threatening to derail everything.

I’ll start with a quick summary and then explain the financial impact of tariffs, how they’ll affect deal activity, and why they are bad news for the finance job market:

Tariffs & The Job Market: Summary

• Although many people claim that tariffs are a “consumption tax” or “sales tax,” they are more like an additional corporate tax on foreign-sourced parts, supplies, and raw materials (i.e., COGS).
• They often are inflationary if companies pass the price increases onto customers 1:1, but it depends heavily on the market, competition, and companies’ margins; a full pass-through is not always possible.
• While I support the general idea of onshoring more industries and making more physical products in the U.S., it must be planned and executed carefully, not run like a clown show.
• The current implementation of these tariffs – even if they’re very high only for China – will lead to price spikes, small-business failures, and even bankruptcies at large companies. I guess traders and restructuring bankers might benefit?
• Tariffs tend to reduce companies’ margins and cash flows and produce higher Discount Rates, meaning that valuations fall. The deal math around metrics like EPS accretion/dilution also becomes much more challenging.
• You could argue that changing policies such as tariffs will lead to more deals as companies modify their supply chains via acquisitions. However, this type of shift takes years/decades to play out and depends on stable long-term rules, which do not yet exist.
• So, if nothing is resolved within the next few months, I expect that deal activity will fall even more substantially this year. Banks are currently in “wait and see” mode, but this will turn to “cancel and cut” mode soon. Morgan Stanley has given it 3 – 4 months before deals get “deleted.”
• Banks will probably hire the same number of interns, but there will be fewer lateral roles, a lower full-time offer conversion rate, and fewer full-time jobs in general because of this reduction in deal activity.
• The biggest issue is not whether it’s a 10%, 20%, or 200% tariff, but the uncertainty and constant rule changes sparked by random tweets or TV appearances.

What Do Tariffs Do, and Why Do Countries Use Them?

Our “tariff model” tutorial sums it up, but tariffs are a tax on companies’ imported Cost of Goods Sold (COGS).

By driving up the price of imports, they encourage companies to source and produce domestically rather than using foreign producers/suppliers.

Tariffs take effect primarily at the corporate level, so the price increases are often passed on to everyone else in the supply chain, which tends to cause a “spiral” of price increases.

The argument for tariffs is that if a China-produced portable stove costs $250, but a U.S.-produced one costs $500, tariffs could “level the playing field.”

For example, if the Chinese stove now costs $450 or $500 rather than $250 because of price increases due to tariffs, more U.S. stoves would sell because the prices are much closer.

Throughout the 1800s, tariffs were the top revenue source for the U.S. government because it was much smaller and had no income taxes or social welfare programs.

Once the individual income tax was enacted in 1913 and greatly expanded during World War II, tariffs were phased out.

Even if they had stayed in place, they wouldn’t have been able to pay for programs like Social Security and Medicare or the military-industrial complex.

Whether or not tariffs “work” in the modern world is tricky to answer, but most of the evidence points to mixed results (at best).

For example, countries like Brazil have used heavy protectionism to encourage domestic industries since WWII.

These policies led to companies such as Vale and Embraer that now compete worldwide, but they’ve also resulted in poor labor productivity and ~2x higher prices for iPhones and other electronics.

Also, it’s difficult to evaluate tariffs in isolation because most countries use other policies to encourage domestic production.

For example, China imposes stringent barriers on foreign companies that want to operate in the country (form a JV with a Chinese company, accept that all your IP will be stolen, etc.), but they also heavily subsidize domestic producers.

Chinese companies are undoubtedly great at making things at very low costs, but these policies have added fuel to the flame and produced the results we’re now seeing in sectors like automotives, where China has become the world’s top exporter in ~4 years:

 

Why is Trump Going Crazy with Tariffs Now? Are Orange Monkeys in Charge of the Government?

Trump has been talking about unfair trade since the 1980s – back then, it was all directed toward Japan and how it was threatening to take over the world.

These tariff policies fit his campaign promises to bring back manufacturing, reduce the trade deficit, stop other countries from “ripping us off,” etc.

As much as I hate to admit it, there is some validity to these claims:

• Yes, other countries do manipulate their currencies to encourage exports.
• Yes, other countries have imposed trade barriers that have reduced access to their markets, despite the U.S. offering relatively open trade access until recently.
• And yes, China is clearly a bad-faith actor. They have a long, well-documented history of stealing, spying, hacking, and ignoring agreements to act like civilized adults. There is a strong case to treat China differently from every other country.

All that said, I’m not sure tariff threats are the solution to these issues.

People have cited the chaotic implementation, the mixed messaging, and the on-again-off-again exemptions, and I agree with all that.

But I’m especially skeptical of this approach for the following reasons:

• Other industrial policies are needed to reshore and reindustrialize, similar to what the CHIPS Act and parts of the IRA did.
• Non-tariff trade barriers, such as quotas, licensing, and regulatory requirements, still exist in many cases.
• Software and services change the picture significantly, and the U.S. runs a surplus with the rest of the world in services. Yes, an economy needs more than services to thrive, but the numbers look quite different if you consider the total dollar flow.
• It’s misleading to analyze the trade deficit on a bilateral basis – they should look at each country’s overall surplus or deficit with the rest of the world, not just with the U.S.
• There’s no clarity on the exact goals. Do they want more tax revenue? More manufacturing jobs? More secure supply chains? Or do they want to eliminate all trade barriers? The conflicts are obvious (how will there be additional tax revenue if the end goal is to reduce trade barriers to 0 everywhere?), and the “logic” is baffling.

A competent administration would state its main goals, propose clear rules, and enact a transition period to give businesses time to adjust.

For example, maybe say that X% of a company’s production or Y employees must be based in the U.S. to avoid a Z% tariff, and there’s a transition period of Q years to comply.

That would at least give companies time to shift their supply chains and account for these new rules.

As it stands, tariffs will destroy small and mid-sized businesses dependent on foreign production/sourcing while only making a minor dent in Apple’s profits.

How Do Tariffs Affect Deals and Deal Activity?

Coincidentally, we have a new video and Excel model for an M&A deal affected by tariffs.

You can get the full details there, but the short version is that tariffs are very bad for companies, valuations, and deal activity, no matter what happens.

For example, consider these three scenarios:

1. 20% Tariff on Imported Goods and No Cost Passthrough – If the company cannot pass on these costs, it takes a massive margin hit, especially if its expenses are mostly variable.
2. 20% Tariff with Full Cost Passthrough – If each widget now costs $120 to import rather than $100, and the company also charges customers $20 extra for each finished product, theoretically, there is no difference. This is the “neutral” case.
3. 20% Tariff with Full Cost Passthrough and Reduced Unit Sales – But the more likely scenario is that this company now sells fewer units because customers are price-sensitive and will reduce their purchase volumes due to higher prices.

Scenario #1 is the worst and could reduce many companies’ overall EBIT or EBITDA margins by 50%+, Scenario #2 is moderately bad, and Scenario #3 is neutral but unlikely in real life.

You could argue that in the long term, tariffs might encourage companies to spend more on CapEx and acquisitions to increase their domestic production capacity, but that takes years to materialize.

In the short term, tariffs translate into anywhere from a “neutral” to “very bad” outcome.

You may not think that software, services, and IP-driven companies will be affected, but you’d be surprised.

For example, any tech company that owns data centers (basically all large tech companies) will be affected because the parts and materials will become more expensive.

I would expect:

• Massively Negative Impact: Retailers that source and produce entirely in China.
• Moderately Negative Impact: Any sector that’s dependent on capital goods from other countries (industrials, power/utilities, etc.).
• Negative-But-Not-End-of-World Impact: Software and services companies that only operate domestically and have minimal COGS and CapEx.

A market selloff of 10 – 20% after a 10% universal tariff makes perfect sense if you consider the lower future cash flows and the higher Discount Rate.

If anything, the market might underestimate the impact of tariffs (or discount the probability that they remain in full effect).

Everything above means that companies are very reluctant to announce growth initiatives, make acquisitions, or complete financing rounds.

No executive wants to approve a project that gets killed overnight because Trump tweeted something ridiculous that suddenly flipped the economics.

And that’s why deal activity, which was already poor in Q1, will get even worse.

Tariffs & The Job Market: Full-Time Hiring Effects

Overall, this will be quite bad for full-time roles because less deal activity means banks need fewer employees.

Senior bankers are willing to sit on their backlogs and wait for conditions to improve… but only for so long.

If there’s no resolution in sight by the middle of this year, I expect that banks will start making cuts and reduce their full-time hiring goals.

To be fair, some people in the finance industry might benefit:

• Global macro traders at hedge funds.
• Anyone on sales & trading desks such as rates, equity derivatives, currencies, or commodities.
• Restructuring bankers and consultants because they will have a lot of failed companies to advise very soon.

I’m not sure I would recommend “quitting” your current job search or targeting different industries because it depends on how long this drags on.

Also, it might be hard to do this when tariffs negatively affect ~90% of jobs while benefiting only ~10%.

Tariffs & The Job Market: Internships

Banks always hire a certain number of interns each year, even when the environment is chaotic, no one knows what’s happening, and companies are frozen with indecision.

When COVID began in March 2020, I thought banks might cancel summer internships, but that was completely wrong.

Instead, they simply ran watered-down virtual internships where everyone worked remotely.

So, I doubt that internships will be cancelled or reduced due to this trade war.

If it persists for years and completely freezes deal activity, banks might reduce their intern hiring levels, but they always bring in some new people each year to cover attrition.

That said, I do expect the full-time conversion rate to be significantly lower.

If a bank hires 100 interns and normally plans to bring back 50 for full-time roles, a massive reduction in deal activity might knock that number down to 20 or 30.

You’ll be fine if you are a top-ranked intern, but if you’re in the middle or not quite “sold” on investment banking, this reduced conversion rate could be quite bad.

The only other positive is that current conditions might encourage banks to stop accelerating the recruiting timeline.

If deal activity can change based on tweets or incorrect headlines from bots, hiring people 1 – 2 years in advance makes far less sense (and it never made much sense to begin with).

But who knows?

Maybe after another few tweets, there will be a “big, beautiful” trade deal, and the apocalypse will have proven uneventful.

For Further Learning About Tariffs

I like to read takes from a range of different sources, so here are a few I’ve read or watched on different sides of the political spectrum:

• Universal Tariff Revenue Estimates from the Tax Foundation – “Non-partisan” in theory, but more like a center-right lean.
• The Great Tariff Debate on the All-In Podcast – “Team MAGA” (David Sacks and Chamath) come off quite poorly against “Team Neoliberal” (Larry Summers and Ezra Klein), but this was at least moderately interesting.
• All the Arguments for Trump’s Tariffs Are Wrong and Bad | What Would a Real Anti-China Trade Strategy Look Like? – From Noah Smith, a popular economist Substacker.
• Talking Tariffs | Assessing NAFTA – From “El Gato Malo,” this is more of a traditional libertarian argument against tariffs that blames the manufacturing decline on excessive regulation rather than free-trade deals.
• “This Instability May Be Worth It. Here’s Why.” – From Oren Cass, one of the few tariff defenders with some common sense and reasoning ability.