The Impact of U.S. Tariffs in the Private Equity Sector

On April 2, 2025, “Liberation Day”, the Trump administration announced sweeping tariff hikes intended to rebalance global trade flows by imposing an ad valorem duty on imports from trading partners^[1]. This universal 10% tariff on all imported goods took effect on April 5, 2025.  On April 9, 2025, additional duties took effect, resulting in increased tariffs ranging between 11% and 50%^[2] on various countries.  Such tariff hikes have not been seen since 1930, when the Smoot-Hawley Tariff Act was passed. Given the nearly 100 years between the previous act and these new tariffs, many questions and uncertainties have arisen, with little recent history to look back on. While private equity managers continue to digest recent tariff developments and uncertainties regarding ongoing trade negotiations, several matters should continue to be monitored.

What industries is this impacting?

Tariffs generally impact industries that rely on importing foreign materials or products.  Industries that are significantly impacted include the manufacturing, construction, retail, automotive, and semiconductors sectors.  Should trade negotiations stall, market uncertainties continue, and current tariff positions hold, additional industries are expected to be significantly impacted, with increases in cost structure and reconsideration of supply chains necessary.

Has investing and deal activity slowed as a result of tariffs?

Yes, mergers and acquisitions activity in the U.S. has decreased significantly after the launch of tariff increases.  According to Reuters^[3], the number of M&A contracts announced across the world in April 2025 fell to the lowest level in more than 20 years.  Deal making is generally expected to rebound if tariff negotiations are resolved and a trade war is averted.

What steps should be taken now by private equity managers?

Now is an advantageous time for private equity managers to expand due diligence procedures on target companies and portfolio companies to ensure they have a complete understanding of the risks and exposures associated with tariffs. Private equity managers have an opportunity to implement structural changes to operations at portfolio companies, reassess the ability to onshore portions of their supply chain, and implement technology to navigate through the changing tariff landscape.  Private equity managers may also view this period as an opportunity to obtain high-quality investments at potentially steep discounts.  As potential buyers remain on the sidelines, sellers under duress may be looking to make deals, which could result in more favorable deal terms to the buyers.  From a public market perspective, market volatility and uncertainty from tariffs can lead to public companies facing challenges to raise capital, thereby positioning them as potential targets for private equity investment.  Additionally, managers with experience in private credit can take advantage of market uncertainties to provide flexible financing options to companies.  Debt is a more liquid asset class than a typical private equity investment, and managers with private credit experience may have increased opportunities to fulfill short term financing needs amid tariff uncertainty.  

How will tariffs impact private equity investment valuations?

While the full impact of tariffs is still being assessed, several key drivers are expected to impact the valuations of investments held by private equity managers:

• Industry – As previously discussed, tariffs impact specific industry sectors facing increases in costs due to existing overseas supply chains. Portfolio companies that are unable to react timely to maintain profitability, may face decreases in valuations.
• Region – If a portfolio company is based out of, or has operations in, foreign countries with elevated tariff rates, further analysis should be performed to determine the impact on costs and alternative sourcing, as valuations may be negatively impacted.
• Interest Rates – For portfolio companies valued utilizing a discounted cash flow model, higher benchmark interest rates generally decrease valuations, while lower rates generally increase valuations. A protracted higher tariff policy that elevates inflation, may result in the central bank maintaining interest rates at a higher level, decreasing valuations.  Conversely, if long term benefits to the U.S. economy are gained from a tariff policy, including increased production from onshoring, any corresponding loosening of US monetary policy through a decrease in interest rates, would be expected to generally increase valuations.
• Onshoring – While reducing free cash flow in the near term, capital expenditures for onshoring operations can impact the future long-term profitability and anticipated growth rates of portfolio companies. The successful onshoring of operations, may positively impact future cash flows and corresponding valuations.
• Flexibility of Businesses – Businesses that are structured to minimize the negative cost impact of tariffs by developing supply chain optionality with alternative sourcing will have the ability to manage expectations for future cash flows, building resilience to decreases in valuations based on shifts in tariff policies. The development of long-term strategic flexibility as compared to short term reactive fixes, will have a greater impact on normalizing projected growth, strengthening valuations.
• Market Comparables – For valuation models utilizing market multiples, there may be fewer recent comparable transactions in the first half of 2025, as the deal market paused to assess tariff negotiation trends. Private equity managers should scrutinize the comparability of guideline public companies and associated multiples, and include an assessment of comparable supply chain and tariff exposures, in considering the relevance of these multiples to the subject portfolio company being valued.

What can portfolio companies do to mitigate the impact from tariffs?

Portfolio companies can consider the following to mitigate the impact from tariffs.

• Assess the Impact – Understand pricing and sourcing exposures to tariffs by suppliers and geography through predictive analytics. Gather company specific data across finance, logistics, and procurement functions to enable strategic responses ahead of economic shifts.
• Diversify – Identify any concentrations on suppliers with significant exposure to tariff increases. Consider laying the groundwork to source opportunities from alternative suppliers in countries with more favorable trade agreements, to mitigate exposure to unfavorable duties and diversify the supply chain.
• Onshoring Production – Assess whether or not increasing domestic production is possible and profitable. Decisions should contemplate whether state and local tax incentives may be used to offset relocation costs and the intangible benefits of onshoring including increases in quality control. 
• Fixed Price Contracts – Negotiate fixed-price contracts with suppliers and distributors to the extent possible, to protect companies from price fluctuations resulting from the tariffs.

The Bottom Line on Tariff Impact on Private Equity

The introduction of tariffs offers an opportunity for management to assess the operations of companies and enact proactive measures and structures to respond to changing market dynamics.  The viability of each portfolio company investment should be considered on an individual basis, assessed for tariff and other operational risks.  While recent developments and uncertainties regarding ongoing trade negotiations abound, building ongoing flexibility will be vital to the success of the industry.

Have further questions or need assistance? CBIZ has launched CBIZ Tariff Solutions, which outlines our step-by-step tariff response approach and capabilities:

[1] Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits
[2] https://www.whitehouse.gov/wp-content/uploads/2025/04/Annex-I.pdf
[3] M&A deal signing hits 20 year-low after Trump’s ‘Liberation Day’