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Weekend Analysis

PE industry on edge as Trump’s tariff strategy takes shape

PE dealmakers are preparing for the potential impact of Trump’s tariff strategy.

President Trump has arrived, bringing with him a rapid-fire set of changes.

The president began his whirlwind second term with a torrent of executive actions and announcements impacting immigration policy, energy investments, AI infrastructure and DEI programs.

For private equity, while there were cheers for a proposed $500 billion AI venture called The Stargate Project as infrastructure investors continue to bet on data center growth, the president’s policy agenda is also triggering concerns.

“Tariffs are clearly front of mind right now for PE sponsors and investors, particularly in the case of portfolio companies that are reliant on cross-border supply chains, whether that’s from Asia, Canada, or Mexico,” Meghan McKeever, a PE and M&A partner at Torys, told me. The law firm’s clients include GPs with investments in the US and abroad.

While Trump didn’t drop the tariff hammer on day one, PE dealmakers are not yet sighing with relief. Many remain convinced that tariffs are coming and are not just being used as a political threat.

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Since taking the oath of office, the president has shared plans to levy 25% tariffs on Mexico and Canada and a 10% tariff on all Chinese goods on Feb. 1. He has also vowed to slap duties on the EU and Russia.

Given his executive actions, the president has demonstrated a clear commitment to following through on many, if not all, of his campaign pledges, said Brad Haller, a senior partner at Chicago-based consulting firm West Monroe Partners.

PE firms are starting to implement the plans they have been crafting for months in anticipation of tariffs.

For instance, Haller cited an aircraft component manufacturer with supply chain sources in China that is setting up new entities to limit the value of potentially tariffed goods. Similarly, he pointed to an equipment supplier to oil and gas drillers that is pivoting its client base from foreign customers to domestic ones.

Exit delays are another concern. PE advisors expect the policy uncertainties to hinder the recovery of PE investment and exit activity in sectors vulnerable to tariffs, such as manufacturing and consumer goods. Buyers and sellers are waiting for greater visibility on Trump’s tariff policies, which is putting some deals on hold.

This may also extend the holding period for portfolio companies with high exposure to potential tariffs as sponsors stretch exit timelines to avoid booking losses on asset sales. Sponsors may look to ride out the storm, banking on a possible reversal in Trump’s trade policies.

Some, though, argue that the impending tariffs could spur a wave of exits.

“If you’re holding a foreign investment and you’re thinking of exiting, you may see increased pressure to exit because you want to get out before the environment gets any worse,” said Jim Corridore, PitchBook’s senior industrials analyst.

Sellers seeking to divest from such investments could struggle to find buyers, potentially forcing them to sell at a depressed valuation.

On the other hand, targets in industries less vulnerable to tariffs—including US manufacturers and domestic transportation and logistics businesses—may command higher premiums, McKeever said.

Investors in PE funds will closely observe tariffs’ impacts on their holdings and make allocations accordingly. Corridore expects LPs to shift towards PE investments with less thematic risk from tariffs and other external forces.

Featured image by Drew Sanders/PitchBook News

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  • Madeline Shi July 2024.jpg
    About Madeline Shi
    Senior reporter Madeline Shi writes about private equity and the debt markets for PitchBook News. Previously she has written for news outlets including Debtwire, With Intelligence (formerly Pageant Media), Business Insider and CoinDesk. Madeline earned a graduate degree from New York University’s school of journalism and is a graduate of Northeast Normal University in China. She is based in Seattle.
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