By Svea Herbst-Bayliss, Abigail Summerville and Sabrina Valle

NEW YORK, March 5 (Reuters) - A private equity firm in early talks to buy a small U.S. snack food maker and merge it with a Canadian rival was optimistic about getting a deal done this year - until U.S. President Donald Trump took office in late January.

The talks were shelved indefinitely after Trump said he would impose a 25% tariff on Canadian goods. Trump made good on the threat on Tuesday, sparking a drop in global markets and retaliation from other countries.

"We can't take that risk right now," the investor said days before Trump levied 25% tariffs on goods from Mexico and Canada, triggering a global trade war. Trump also doubled the taxes on imports from China to 20%.

"We would be super aggressive on that deal if there wasn't so much uncertainty around tariffs," the executive said, asking not to be identified because the talks were private.

Across Wall Street, executives and investors are running into roadblocks to get deals over the finish line, or even to begin exploratory talks, according to interviews with more than 20 investment bankers, M&A lawyers, private equity investors and hedge fund managers.

Wall Street analysts cheered when Trump was elected in November, predicting a banner year for mergers and acquisitions with a projected $4 trillion in potential corporate deals, the best in at least a decade. Instead, 2025 started with a whimper.

Dealmakers and corporate executives are struggling to navigate through the rapid-fire global policy and economic changes unleashed in the first six weeks of Trump's new administration – from retaliatory tariffs to Elon Musk's mass firings at federal agencies. The uncertainty has cast a chill over the market.

The pace of U.S. mergers and acquisitions in the first two months of 2025 was the weakest since the financial crisis with just 1,603 deals signed through Friday, making it the slowest open by volume since 2009, Dealogic data showed. Total deals fell more than 19%, while the total value dropped 29% to $248.78 billion from the first two months last year.

"All the deals got held off in January and February," said Bill George, former Medtronic CEO and executive fellow at Harvard Business School. "There were very few deals done because of this uncertainty; they (CEOs) don't know how to run the numbers, they don't know how to predict what happens."

Trump imposed tariffs against a slew of consumer goods and raw materials, promising to raise prices on cars, consumer goods, gasoline and technology.

"The prospects of higher tariffs and escalating tensions between the U.S. and its trading partners are the top concerns for many U.S. corporate borrowers we rate," S&P Global ratings said in a research report on Thursday.

"Significant uncertainties also remain for other measures — including reciprocal tariffs, and additional tariffs on specific products, as well as the possibility of 25% tariffs on imports from the EU — that the president has suggested."

One activist hedge fund was pressing a $1 billion aerospace conglomerate in early January to consider selling itself, said one person with first-hand knowledge of the discussions. But the two sides are at an impasse with a top executive at the company worrying it will not fetch a fair price with so much uncertainty in Washington and market volatility, the person said.

While market gyrations sometimes benefit hedge funds and other traders, corporate boards and shareholders looking to strike multibillion-dollar deals do not like wild swings in stock prices and government policies.

The lackluster opening for M&A in 2025 is already weighing on big investment banks like Goldman Sachs, Keefe Bruyette & Woods analysts wrote in a research report downgrading the investment bank's shares last week.

"Market uncertainty surrounding tariffs, inflation, interest rates and government policies ... have led to a disappointing start of the year in investment banking," driving investors away from those stocks, the analysts wrote.

Even for companies not directly affected by tariffs, the mood has soured on deals, bankers and fund managers told Reuters, adding that any whiff of uncertainty from Washington can chill the atmosphere. Several hedge fund managers complained that deals they proposed were lingering somewhere between dead and being on life support.

"There is a strong view that a lot of things around taxes and regulation will go in the right direction, but in the interim, those negotiations can be controversial and complex," said Gregory Bedrosian, managing partner & CEO of boutique investment bank Drake Star.

Uncertainty is driving potential sellers of companies to wait until markets are steady enough that their projected valuations will hold and not be upset by unusual macroeconomic events, he said.

The slowdown in dealmaking will likely take center stage at this week's 37th Annual Tulane Corporate Law Institute conference in New Orleans, where more than 1,000 lawyers, bankers and executives will meet for two days of speeches and panel discussions on key issues affecting the industry.

Even as smaller deals are getting sidelined, many on Wall Street still expect Trump's stances on taxes and regulation to pave the way for megadeals this year, like the sale of Chinese short-video app TikTok.

Several senior dealmakers at top U.S. banks, requesting anonymity because they are unauthorized to speak publicly, said work is proceeding on other potential blockbuster deals that would create mega U.S. companies to compete with China. They do not expect the Justice Department under Trump to hold up such deals, as was the case under the Biden administration.

(Reporting by Svea Herbst-Bayliss, Abigail Summerville, Sabrina Valle; Additional reporting by Milana Vinn and Anirban Sen; Editing by Dawn Kopecki and Richard Chang)

((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters Messaging: svea.herbst.thomsonreuters.com@reuters.net))