The recent implementation of sweeping tariffs under President Trump's "economic liberation" agenda has created significant ripple effects throughout the private equity industry. After a period of optimism in 2024 with cooling inflation and easing interest rates, private equity firms are now recalibrating their strategies to navigate this new trade policy landscape.
The tariffs, including a general 10% duty on all countries plus elevated rates targeting specific nations like China, have introduced fresh challenges but also potential opportunities for the private equity sector.
The tariffs announced on April 2, 2025, have raised concerns about the economy and caused market instability. According to Tax Foundation analysis, these tariffs are expected to reduce US GDP by 0.4%; with the cumulative effect of all Trump tariffs, the impact could be as high as 0.7%. If trading partners retaliate, the combined impact on US GDP could reach 0.8%[1].
The market reacted quickly and negatively, with the S&P 500 dropping approximately 19% from its peak in February by early April[2]. This volatility is affecting private equity valuations, investment strategies, and exit timing. The uncertainty surrounding future policy shifts has created a cautious environment where businesses may reduce workforce in the short term and limit job creation moving forward[2].
In response, China has announced it will impose tariffs of its own, matching President Trump's 34% tariffs. This could lead to a trade war, further complicating the investment climate[3]. The retaliatory tariffs, affecting about $330 billion worth of US exports, could reduce US GDP by an additional 0.1%[1].
The current tariff situation has shifted how private equity firms approach deals. Due to the uncertainty surrounding tariffs, there is now a more cautious approach in mergers and acquisitions. Deals are taking longer to close, and firms are extending due diligence periods[4]. To reduce the risks tied to tariffs, private equity firms are becoming more flexible with deal structures, incorporating Earnouts, contingent payments, and adjusted clauses related to material adverse effects[4].
Despite the challenges, some industry observers remain cautiously optimistic. Anthony Quay from S&P Global Market Intelligence suggests that:
"the underlying conditions for private equity to both deploy new capital and to exit existing positions are still there. The tariffs will put a pause on that, but I still expect 2025 activity to be in excess of 2024 by the end of the year"[5].
Companies heavily dependent on international trade are facing significant pressure, leading to lower valuations in sectors directly affected by tariffs[4]. On the other hand, businesses less exposed to international trade disruptions are likely to see higher valuations, creating a divided market for acquisitions[4].
The tariffs have created what HarbourVest describes as a divergence between buyers and sellers in their pricing expectations:
"Whenever we move through periods when forward visibility of economic conditions and business results are unclear, buyers will pull back from the market or will seek large valuation buffers. As a result, buyers and sellers will diverge in their pricing and valuation views, leading to less exit activity"[6].
Private equity firms are closely re-evaluating how their portfolio companies are affected by supply chain issues. KKR & Co. Inc. highlighted in a recent filing that tariffs
“have the potential to increase costs, decrease margins, reduce the competitiveness of products and services offered by portfolio companies and adversely affect the revenues and profitability of portfolio companies"[5].
While many private equity managers are aware of the direct impact of tariffs on their companies and immediate suppliers, fewer have explored the deeper effects within the supply chain. John Fiorentino, managing director at Alvarez & Marsal’s private equity practice, points out that the true risk lies in inflationary pressures, with suppliers potentially passing on steep price hikes, such as a 25% increase[5].
The uncertainty over whether tariffs are a permanent policy shift or just a starting point for trade negotiations has led many companies to delay major supply chain investments. Fiorentino notes:
"The uncertainty is huge. I can't think of a single example in 2025 where somebody has made truly transformative changes to their supply chain”[3].
Currently, portfolio companies are focusing on reviewing supplier contracts and optimizing their existing supply chains instead of making big changes[5]. This cautious approach reflects the wider wait-and-see attitude in the private equity sector as firms assess the potential long-term impact of the tariffs.
The tariffs have introduced additional complications to an already tough exit environment for private equity firms. After years of extended hold periods, many firms entered 2025 hoping for better exit opportunities. However, the market volatility caused by tariffs has dampened these expectations[5].
Secondary sales and trade sales to strategic buyers are expected to recover first, while private equity-backed IPOs may not gain momentum until late 2025 or 2026. This follows a strong 2024, which saw 212 private equity-backed IPOs globally, the highest since 2021[5].
HarbourVest reports:
"We have already observed a slowdown in deal flow leading up to the tariff implementation and expect sourcing activity to be choppy until the markets digest and assess the ultimate impact... while the optimism that existed coming out of 2024 into January has waned, we expect activity to continue for high-quality assets, despite expectations that the overall distribution environment is likely to be slow and intermittent"[6].
The challenging exit environment is likely to extend hold periods for portfolio companies, meaning private equity firms will need to focus even more on operational improvements and value creation. As noted by Quay:
"In concert with hold times extending, you've seen a much larger movement towards true underlying value creation by private equity managers, and not just financial engineering"[5].
This shift toward strengthening portfolio companies through fundamental operational improvements may delay returns to limited partners, but it could ultimately build stronger businesses in the long run.
Private equity firms are strengthening their due diligence processes to better assess tariff risks. This involves a more thorough analysis of tariff exposure across the entire supply chain, as well as a detailed review of how potential investments may be affected by both direct tariffs and possible retaliatory actions from trading partners[4].
The tariff environment is driving a shift in investment focus. Private equity firms are increasingly targeting sectors that are less affected by tariffs, such as technology and healthcare, while becoming more cautious about industries with higher exposure, like automotive and manufacturing[6]. If tariffs remain in place long-term, this sector shift could have a lasting impact on private equity portfolio composition.
Despite the challenges, the current environment also presents opportunities for private equity firms with significant dry powder. Shanu Sherwani highlights that:
"the significant levels of dry powder available allow PE firms to invest opportunistically- particularly in dislocated or undervalued assets"[1]. Market disruptions often create attractive buying opportunities for well-capitalized investors with a long-term perspective.
The private equity model has demonstrated considerable resilience through previous economic disruptions. As Sherwani points out:
"Just as the industry successfully navigated the COVID-19 pandemic, the Global Financial Crisis (2007-2009), and the dotcom downturn of the early 2000s, it is well positioned to withstand and adapt to the turbulence these new trade policies may bring"[7].
This resilience comes from the inherent strengths of the private equity model: long-term investment horizons that enable firms to manage through volatility, active ownership approaches that drive operational improvements, and substantial dry powder that allows firms to capitalize on market dislocations[7].
Trump's new tariffs are creating major disruptions for private equity, impacting deal-making, valuations, portfolio operations, and exit strategies. The immediate impacts include market volatility, cautious deal-making, and delayed exits, while longer-term effects will depend on whether the tariffs become a permanent fixture or evolve through negotiations with trading partners.
While the tariffs have introduced new complexities and risks, they also present strategic opportunities for well-positioned private equity firms with the patience, capital, and operational expertise to navigate the changing trade landscape.
The industry's long-term investment horizon and focus on operational improvements rather than financial engineering may prove particularly valuable in this environment of heightened uncertainty and economic recalibration.
Private equity firms that can effectively manage tariff exposure in their portfolio companies, identify sectors less impacted by trade policies, and capitalize on valuation dislocations may emerge stronger despite the challenging conditions.
As with previous economic disruptions, this period will likely separate the most adaptable and strategically sound private equity firms from those less prepared to navigate policy-driven market shifts.
While Trump’s tariff proposals bring new challenges, they also present an opportunity for private equity firms to show their resilience and strategic edge. With the right insights, flexible planning, and proactive risk management, firms can continue to grow even in uncertain conditions.
At Equivator, we support businesses in navigating these shifts by combining our deep industry expertise with tailored guidance. We help assess the impact of trade changes, adjust strategies, and seize new opportunities. Reach out to explore how we can support your next move.
[1] Tax Foundation. Trump Tariffs: The Economic Impact of the Trump Trade War. April 2025.
https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/
[2] CNBC. Trump tariffs ‘will increase the unemployment rate to recessionary levels,’ says economist. Apr 2025.
https://www.cnbc.com/2025/04/08/trump-tariffs-job-market-impact-will-mostly-be-negative-economists-say.html
[3] Gibson Dunn. Immediate Impacts, Risks, and Uncertain Future of President Trump’s Unprecedented Worldwide Tariffs. Apr 2025.
https://www.gibsondunn.com/immediate-impacts-risks-and-uncertain-future-of-president-trumps-unprecedented-worldwide-tariffs/
[4] CLA. The Impact of Trump's Tariffs on Private Equity Firms, Portfolio Companies. Mar 2025.
https://www.claconnect.com/en/resources/blogs/private-equity/the-impact-of-trumps-tariffs-on-private-equity-firms-portfolio-companies
[5] S&P Global. Tariffs add new hurdle to private equity's exit challenge. Apr 2025.
https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/4/tariffs-add-new-hurdle-to-private-equitys-exit-challenge-88354288
[6] HarbourVest. The Impact of Liberation Day Tariffs on Private Markets Investors. Apr 2025.
https://www.harbourvest.com/insights-news/insights/mc-impact-of-liberation-day-tariffs-on-private-markets-investors/
[7] Delano. PE outlook: strategic opportunity amid Trump trade policy shifts
https://delano.lu/article/pe-outlook-strategic-opportunity-amid-trump-trade-policy-shifts