Navigating Tariff Volatility: Strategic Opportunities in Sector-Specific Private Credit

The global economy is navigating uncharted waters as tariff volatility reshapes industry valuations and investment landscapes. Sectors such as transport, renewable energy, and manufacturing face headwinds from escalating trade tensions, while resilient industries like software, domestic services, and digital infrastructure thrive. For private credit investors, this divergence creates a critical inflection point: the chance to exploit mispricings through sector-specific strategies, leveraging pandemic-era lessons in stress-testing and conservative underwriting. The key lies in distinguishing between cyclical losers and structural winners—and deploying capital with precision.

The Sectoral Divide: Winners and Losers

Tariff volatility has created stark sectoral disparities. The transport sector, for instance, is grappling with overcapacity, declining freight demand, and rising costs. U.S. truckload spot rates remain under pressure as private fleets absorb excess freight, while regulatory mandates for zero-emission vehicles add to operational complexity. highlights infrastructure's resilience versus broader equities—a trend private credit investors can capitalize on through targeted allocations to toll roads or ports with stable cash flows.

Meanwhile, the renewable energy sector faces a double whammy: tax credit phase-outs under the One Big Beautiful Budget Act (OBBBA) and supply chain disruptions from tariffs. Solar and wind projects, for example, now confront a 20% tax credit reduction by . Yet, sectors like geothermal and battery storage (with credits until ) remain viable. Private credit can navigate this minefield by favoring projects with FEOC-compliant supply chains or geographically diversified operations, such as Ormat Technologies' geothermal plants.

Resilient Sectors: The New Safe Havens

The pandemic taught investors to prioritize sectors with inelastic demand and digital defensiveness. Today, that playbook applies to software, healthcare, and domestic services. Digital infrastructure—driven by AI and data center demand—is booming, with returns outpacing private infrastructure indices by 300 basis points.

underscores this synergy. Private credit funds can secure senior loans or mezzanine debt for hyperscalers expanding European data center capacity, such as Microsoft's initiatives, which aim to mitigate geopolitical risks through redundancy.

Domestic services, too, offer insulation from trade wars. Firms with strong regional footprints, such as healthcare providers or logistics networks serving local manufacturers, benefit from reduced exposure to tariff-sensitive supply chains. These sectors' cash flows, while less flashy than tech, offer predictability—a premium in volatile times.

Cyclical Sectors: Proceed with Caution

The transport and traditional energy sectors, however, warrant caution. Tariffs have dampened global trade, with U.S. exports projected to fall 4% by early 2026. Overcapacity in trucking and ocean freight—exemplified by the China-U.S. route—has depressed margins, while regulatory costs for emissions compliance add to strain. reveals the divergence in sectoral health. Private credit investors should avoid leveraged companies in these areas unless secured by tangible assets or geographic diversification.

Similarly, renewable energy's tax credit cliff has created a “race to qualify” for projects starting construction by year-end. While this fuels near-term activity, long-term risks persist for solar and wind developers lacking FEOC-free supply chains.

Strategies for Private Credit Investors

1. Bottom-Up Analysis Over Top-Down Bets:
   Focus on firms with diversified supply chains, geographic reach, or unique competitive advantages. For example, software companies with subscription models (e.g., SaaS firms) offer recurring revenue streams unburdened by tariffs.

2. Conservative Underwriting:
   Demand higher interest rates for cyclical sectors, shorter maturities for volatile industries, and covenants tied to ESG metrics. In transport, prioritize assets like inland ports with strong manufacturing linkages, not overleveraged trucking firms.

3. Leverage Pandemic Frameworks:
   Stress-test portfolios for scenarios akin to 2020—sudden demand shifts, supply chain bottlenecks—and favor sectors that proved resilient then, like healthcare IT or cloud infrastructure.

The Investment Outlook

Private credit's advantage lies in its ability to avoid public market overreactions. While renewable energy stocks like First Solar (FSLR) slump due to tax credit fears, private debt to Ormat Technologies or battery storage projects can offer 8-11% yields with collateralized security. Similarly, software firms may command lower leverage multiples than their public peers, creating entry points for mezzanine financing.

Yet risks persist. Policy shifts—such as further tariff hikes or delays in geothermal subsidies—could disrupt plans. Investors must diversify across sectors and geographies, avoiding overexposure to any single trade corridor or subsidy-dependent project.

Conclusion

Tariff volatility is not an indiscriminate storm but a sectoral reshuffling. Private credit investors who pair pandemic-era discipline with a nuanced view of industry dynamics can secure asymmetric returns. The playbook is clear: back digital and green infrastructure, avoid tariff-exposed cyclical sectors, and anchor decisions in granular, bottom-up analysis. In this new era, differentiation—not diversification—will define success.

The data tells the story: resilience breeds opportunity. For the prudent investor, the next chapter of growth lies in the sectors—and structures—that tariff volatility cannot shake.