One thing that these initial Trump 2.0 months have shown is that there is no sanctity to decisions. Just when the world was trying to deal with the ‘Liberation Day’ announcements¹ on April 2^nd and the markets were trying to figure out the solutions, came the announcement that the Tariffs will be delayed by 90 days – for everyone except China. And just when the markets were trying to deal with the China +1 strategies, the US and China announced a trade deal, slashing tariffs by a massive 115%.

The financial world continues to be roiled, not by the tariffs, but by the uncertainty around them². Two questions are uppermost in every mind: what happens when the 90-day moratorium for the rest of the world expires, and what happens when the China pause expires?

Resilience Amidst Fear, Uncertainty & Doubt

Private Equity firms are under notice to display their resilience³ under the influence of the FUD factor. At the portfolio level, the resilience will be tested under three broad areas:

• Supply Chain Disruptions: Since the ink is not being allowed to dry, due to constant flip-flops, while most PE firms are aware of the broad impacts of the Tariff impact, few have had the opportunity to analyse the balance sheet impact of these disruptions. The real challenge is to understand the impact of these disruptions and what portion of these increased costs can be passed on to the consumers and the resultant impact on demand and supply. The other challenge is to also take strategic decisions related to supply chain investments.
• Liquidity Events: As a consequence, there is a high probability that liquidity events may be delayed due to the mismatch of expectations between the buyer and the seller
• Longer Hold Periods: The mismatch in valuation will lead to longer hold periods for the PE companies and may offer the PE companies to improve the operational efficiencies of their portfolio companies.

Under these circumstances, there is a heightened element of risk associated with the portfolio dynamics. Transaction dynamics are undergoing a profound change. Dealmaking is under pressure due to aggressive tariffs and counter-tariffs across the world by major economic clusters – the US, EU, China, BRICS etc. The risk increases, not due to high or low tariffs, but the uncertainty surrounding the same. This leads to:

• Multiple Simultaneous Shocks: Due to the US tariffs and other countries’/groups’ countermeasures, today’ PE investor will have to understand multiple shocks operating at the same time. This includes both supply chain and demand shocks between the US and its trading While each one of them may impact one industry or sector, all of them apply together across the economy.
• Higher Levels of Due Diligence: PE companies will need to factor in the uncertainties and then ensure that the business operations and profitability continue to grow under various economic situations. This leads to longer diligence processes wherein the PE companies will have to undertake multiple scenario mappings and create transactional parameters for each scenario.
• More Flexibility: The logical consequence of the above will be to introduce higher levels of flexibility into proposed transaction deal structures and then match the expectation gap between the buyer and the seller. At an investment level, this is going to be tricky as the uncertainties around the sovereign announcements and their reactions are unpredictable.
• Higher Role for Legal Covenants: Uncertainty leads to different scenarios, and understandably, the legal implications of each scenario will also need to be understood, along with possible changes in the legislation. An example of this is the scrapping of the DEI policies in US businesses. PE companies will need to understand the business and economic implications of this, as well as the legal challenges that have sprouted across the US to the presidential order on DEI.
• Don’t Build Master Plans: The key to managing during these times is not to get stuck with hard-coded Master Plans, but to be more nimble and focus on capabilities. PE firms would be well served in looking at companies that display nimbleness against dogmatic annual strategies.
• Don’t Plan for Today: Plan for today AND As a result, focusing on capabilities allows thinking for today, for the next few quarters, and for the next three years – simultaneously. While the degree of complexity goes up a few notches, this allows PEs to be prepared for situations that may arise due to new sovereign announcements and brace for the economic impact.

All of the above place an enormous premium on PEs to recalibrate their strategies and be ready to do so rapidly as the US and the rest of the world engage in the ‘Tariff War’. Tariff Engineering, as CLA⁴calls it, is as important to companies as it is to Private Equity players. Defining scenarios, understanding the counter-levers, the business impact on supply chains and demand drivers, and trying to see if the products can be reclassified under a different harmonized tariff code are going to be critical processes.

Technology will be another key player in these scenarios. Adopting advanced analytics to understand the impact and take investment/divestment decisions could prove to be a cutting edge for PE players. Furthermore, using financial tools to hedge against currency fluctuations, commodity pricing (Oil, Gold, etc), and using the traditional ‘dry powder’ in a strategic but rapid manner will be the differentiator for PE companies.

1. https://hbr.org/2025/04/understanding-the-global-macroeconomic-impacts-of-trumps-tariffs

2. https://www.equivator.com/post/the-impact-of-trumps-new-tariffs-on-the-private-equity-market-risks-responses-and-opportunities

3. https://www.harbourvest.com/insights-news/insights/mc-impact-of-us-tariffs-on-private-markets-investors/

4. https://www.claconnect.com/en/resources/blogs/private-equity/the-impact-of-trumps-tariffs-on-private-equity-firms-portfolio-companies