Trade war tailwinds: a new playbook for private equity
So, the Sino-American trade war has resumed, once again throwing global trade into flux and injecting the market with a fresh dose of precarity. This isn't a rerun of previous trade disputes. While Washington has secured eleventh-hour deals with Mexico City and a temporary truce with Ottawa, Beijing's swift retaliation signals a new, more contentious phase of the conflict.
Within minutes of Washington D.C. imposing a 10% tariff on all Chinese imports this week, Beijing fired back with levies on U.S. energy and agricultural goods, further compounding the uncertainty among investors. Set to launch on 10th February 2025, the 15% tariffs on U.S. coal and LNG, 10% on crude oil and vehicles, and export controls on minerals such as tungsten could be a harbinger of further tension, especially if the U.S. continues its pursuit of trade levies with other global partners, such as the European Union.
Regardless, what is certain is the need for a nuanced approach to investment strategies to weather an environment further complicated by the renewed tension. For private equity investors, this includes a clear understanding of both the stark challenges and the emerging opportunities presented.
Challenges on the horizon
For private equity, this iteration of the trade war presents several key challenges:
Heightened uncertainty: Even firms that felt well-positioned to invest after a difficult period for private equity now face a significant increase in market volatility. Forecasters have downgraded their baseline forecasts or find predicting the long-term effects of these tariffs difficult to measure, making investment decisions more precarious.
Rising costs and diminished Returns: Tariffs translate directly into higher costs, not just at the point of import but throughout the entire investment lifecycle. These increased costs will squeeze profit margins and likely impact net returns upon exit, potentially dampening overall performance.
Increased regulatory scrutiny: The current climate is likely to lead to greater regulatory oversight of foreign investment. This increased scrutiny can complicate cross-border deals, limiting the ability of private equity firms to leverage their global reach and potentially delaying deal closures.
Finding opportunities amid the turbulence
While the challenges are significant, they also create distinctive opportunities:
Distressed assets: The trade war's disruption of supply chains and increased costs could lead to a rise in distressed assets. Private equity firms with the expertise to identify and acquire undervalued companies in struggling sectors may find attractive investment opportunities.
Focus on domestic markets: As international trade becomes more complex, a renewed focus on domestic markets could offer more stable ground. Identifying targets poised to benefit from increased domestic demand or those that can effectively navigate supply chain disruptions on home soil may be a winning strategy.
Technology and innovation as a safe haven: The rise of DeepSeek and similar technological advancements has reiterated that innovation is a key driver of growth, even through economic uncertainty. Private equity firms that prioritize investments in technology, particularly those that mitigate the impact of trade disruptions, could find themselves well-positioned for long-term success.
Your partner in navigating the new trade landscape
In this turbulent environment, access to timely and accurate information is more critical than ever. Atheneum is uniquely positioned to empower private equity firms to navigate these complexities and capitalize on emerging opportunities.
Our service portfolio is designed to create solutions tailored to meet your research needs. Take our Expert Survey Research, which provides a rapid and reliable means to gather data points on market sentiment, assess the potential impact of tariffs on specific industries, and gain crucial insights into evolving supply chains. Our global network of experts offers on-demand access to industry leaders, regulatory specialists, and seasoned executives who can provide invaluable perspectives on the ground. Whether you need to understand the nuances of specific trade regulations, identify potential targets for distressed asset acquisitions, or assess the competitive landscape in a rapidly changing market, Atheneum provides the knowledge you need to make informed decisions.
Our suite of digital products streamlines the research process, expediting and optimizing how you gather and analyze critical data. In a world where agility is paramount, Atheneum's solutions empower private equity firms to stay ahead of the curve and capitalize on the opportunities that arise in this new trade landscape.
Conclusion
The renewed trade war presents a complex and evolving landscape for private equity. While challenges like heightened uncertainty, rising costs, and increased regulatory scrutiny are significant, they also pave the way for unique opportunities. Identifying distressed assets, focusing on domestic markets, and prioritizing investments in technology and innovation are key strategies for navigating this turbulent environment. Atheneum, with its comprehensive suite of research solutions, expert network, and digital tools, stands ready to partner with private equity firms, providing the critical intelligence and strategic insights needed to not only weather the storm but also thrive in this new era of global trade.