In The Loop: Tariffs Create Uneven Outcomes, But They Can Also Present Opportunities

Jeff Helsing Institutional Fixed Income Strategist 
Blerina Uruçi Chief U.S. Economist, TRPA 
Cindy Huang Public Credit Analyst, TRPA 
Izzy Goncalves Private Credit Product Specialist, OHA

Key Insights

• Tariffs create uneven outcomes. Economically, more U.S. consumers and corporations are likely to be negatively impacted compared with the beneficiaries. 
• Policy changes present opportunities for active managers. In fixed income markets, we see advantages in a globally diversified approach.  
• We like shorter‑duration bonds and cash over intermediate‑term bonds and believe there are more opportunities in actively managed sub‑investment‑grade markets, both private and public. In private and public credit, we tend to favor larger companies with strong pricing power.

Tariffs are taxes imposed by the federal government on imported goods and services and are paid by the domestic company or individual importing the goods. They are used to increase the relative cost of foreign goods and services and serve various purposes: generating revenue for the government, protecting domestic industries from foreign competition, and influencing trade policies. 

In this Q&A—to better understand how tariffs create uneven outcomes in the U.S. fixed income markets—Institutional Fixed Income Strategist Jeff Helsing converses with Chief U.S. Economist Blerina Uruçi, Public Credit Analyst Cindy Huang, and Oak Hill Advisors L.P. (OHA) Private Credit Product Specialist Izzy Goncalves.

Jeff: Blerina, since 2020, we’ve observed a significant rise in the prices of goods and services. While tariffs increased to approximately 3% in 2018, primarily affecting Chinese imports, do you think the tariff policy announced on April 2—estimated to impact 15% to 20% of imports1—will result in higher inflation?

Blerina: Jeff, this is a question many clients are asking, and as I discussed in more detail in a previously published report, it depends. By definition, inflation is a persistent increase in the pace at which prices are adjusted. In contrast, a tariff is a one‑time increase in the price level—not a sustained shift in the rate of inflation. After reviewing the proposed reciprocal tariffs, we estimate the net effect of tariffs is likely to be negative for the U.S. economy. Although the federal government and U.S. producers in protected industries stand to benefit from tariffs, U.S. companies and consumers are likely to pay the price. Exporting countries such as those in Asia, Europe, Mexico, and Canada may also see a decline in demand, which may result in lower interest rates and currency values. The resulting increase in economic uncertainty associated with this substantial rise in tariff policy, among other considerations, is likely to raise the equity risk premium and steepen curves in U.S. Treasury markets. 
 

"... economic uncertainty associated with this substantial rise in tariff policy, among other considerations, is likely to raise the equity risk premium and steepen curves in U.S. Treasury markets.

– Blerina Uruçi 
Chief U.S. Economist, TRPA 
 

Jeff: Thanks, Blerina. In Q1 2025, there was a 4% decline in the S&P 500 and nearly a 10% decline in small‑caps as represented by the Russell 2000 ahead of the April 2 tariff announcements. In addition, the U.S. dollar index declined by 4%, and the 10‑year and two‑year U.S. Treasury yields declined by roughly 36 basis points to 4.2% and 3.9%, respectively. While tariff policy isn’t the only consideration, risk premiums and uncertainty rose, as your publication suggested. Izzy, price movements in private markets are slower and typically less pronounced. What are you and OHA’s team of over 120 investment professionals globally seeing in private credit?

Izzy: Jeff, as you know, our investment process for private credit is driven by bottom‑up opportunities and rigorous credit selection. Changes in government policies that create uneven outcomes can expand the opportunity to provide bespoke financing solutions to great companies facing balance sheet strains. As Blerina said, the rising uncertainty that impacted the equity risk premium typically makes the financing cost and complexity rise for the most leveraged companies. For example, if a leveraged buyout of a company was originally financed at a loan to value (LTV) of 50%, and the equity valuation multiple of the company declined by 25% near the time to refinance the debt, the current LTV would be closer to 67%, all else equal. Lenders may not be willing to refinance the company at the higher LTV. Other borrowers with capital structures created before the Fed started hiking rates in 2022 may have difficulty sustaining debt service if interest rates remain elevated. Well‑positioned lenders can participate in restructurings of existing debt or liability management exercises that improve liquidity and/or reduce leverage for these borrowers and may generate premium spreads for investors. 

At OHA, we focus on the upper end of middle market—or large‑cap—borrowers, consistent with our focus on downside protection and recession‑resistant sectors and issuers. We believe this approach is particularly well suited to volatile market and uncertain economic backdrops. Policy changes that create uneven outcomes usually expand our alpha‑generation opportunities. While deal flow can be episodic, we expect robust deployment over time.  
Jeff: Appreciate the big‑picture perspective on how equity market valuations impact the loan to values and credit premiums in private credit, Izzy. Let’s dive into even more detail on industry impact. Cindy, as a credit research analyst covering the automotive industry, you are well‑positioned to share insights based on your analysis and access to management of auto manufacturers, otherwise known as original equipment manufacturers (OEMs). Please share some perspective on what’s been discussed. 
 

"Changes in government policies that create uneven outcomes can expand the opportunity to provide bespoke financing solutions to great companies facing balance sheet strains.

– Izzy Goncalves 
Private Credit Product Specialist, OHA 
 

Cindy: Thanks, Jeff. For background, I’m on the T. Rowe Price Associates, Inc., (TRPA) Fixed Income team focused on credit research for European auto manufacturers, but I recently coordinated with our equity research and my teammates that cover U.S. OEMs and auto suppliers, among others, to share insight on tariff policy and its potential impacts. While I expect the net impact on credit will be negative in aggregate for the largest issuers, it really depends on how willing consumers are to pay higher prices and any potential mitigating action OEMs are able to take. However, we expect lower margins for the sector from both the direct impact of the tariffs and second‑order effects such as increased competition in Europe, as Asia‑produced vehicles originally bound for the U.S. market are redirected into the European market. We also see volume risk for the sector. The latest S&P Mobility forecasts point to flat global light vehicle production for 2025, but we see downside risk to these estimates following tariff announcements. A higher risk of global recession also raises volume risk in both the short and medium term. 

The potential impacts by individual credits can vary greatly, but we view manufacturers with North America assembly and high North American content on vehicles sold into the U.S. as better positioned than those who assemble vehicles abroad or import significant parts. As such, we believe that the impact on the Detroit, Michigan‑based manufacturers collectively, while negative, should be manageable, while Asian manufacturers will be worse hit.

On the other hand, there are some companies that supply parts where the higher relative cost of imported goods makes their products more competitive, so as you said, it creates uneven outcomes, and this is why independent bottom‑up analysis can be additive for making investment decisions. While as lenders we don’t expect this will meaningfully impact the ability for the companies to pay timely interest or make principal payments, it’s helpful to have the insight from equity analysts because as long‑term valuations of the company change, it can impact the costs of refinancing debt—which is important to credit analysts.

Jeff: It appears that the uneven impact of tariff policy tends to be more negative for issuers on average. However, increased clarity on tariffs could help reduce the uncertainty premium. As Blerina mentioned, a significant one‑time increase in tariffs is unlikely to lead to a sustained shift in the rate of inflation. Nevertheless, the size and scope of the announcement on April 2 heighten the risk of a more substantial decline in investment and spending as private sector confidence wanes. Policy changes, including tariffs, underscore the potential need for a diversified and actively managed approach to global fixed income, equity markets, and private credit. The TRPA and OHA Fixed Income investment teams anticipate that intermediate‑ and longer‑maturity yields will rise relative to shorter maturities in the U.S. They also see more opportunities in sub‑investment‑grade markets, both public and private, particularly in larger companies with pricing power over those that may struggle to pass on higher costs. 
 

"While I expect the net impact on credit will be negative in aggregate for the largest issuers, it really depends on how willing consumers are to pay higher prices and any potential mitigating action OEMs are able to take.

– Cindy Huang 
Public Credit Analyst, TRPA 
 

T. Rowe Price cautions that economic estimates and forward‑looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual outcomes could differ materially from those anticipated in estimates and forward‑looking statements, and future results could differ materially from historical performance. The information presented herein is shown for illustrative, informational purposes only. Any historical data used as a basis for analysis are based on information gathered by T. Rowe Price and from third‑party sources and have not been verified. Forecasts are based on subjective estimates about market environments that may never occur. Any forward‑looking statements speak only as of the date they are made. T. Rowe Price assumes no duty to, and does not undertake to, update forward‑looking statements.

This document reflects the views of the respective associates of T. Rowe Price Associates, Inc. (TRPA) and its investment advisory affiliate Oak Hill Advisors, L.P. (OHA). The views expressed in this material may differ from the views of other associates and/or T. Rowe Price group companies. TRPA and OHA have separate research platforms and make investment decisions independently. OHA, an alternative credit manager, is a T. Rowe Price company. TRPA and OHA are affiliated companies.

Important Information 
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a guarantee or a reliable indicator of future results. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. 
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction. 
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. 
The views contained herein are as of April 16, 2025, and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price. 
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction. 
Australia—Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. For Wholesale Clients only. 
Brunei—This material can only be delivered to certain specific institutional investors for informational purpose only. Any strategy and/or any products associated with the strategy discussed herein has not been authorised for distribution in Brunei. No distribution of this material to any member of the public in Brunei is permitted. 
Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to non‑individual Accredited Investors and non-individual Permitted Clients as defined under National Instrument 45-106 and National Instrument 31-103, respectively. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services. 
Colombia, Chile, Mexico, Perù, Uruguay—This material is prepared by T. Rowe Price International Ltd - Warwick Court, 5 Paternoster Square, London, EC4M 7DX which is authorised and regulated by the UK Financial Conduct Authority - and issued and distributed by locally authorized distributors only. For professional investors only. 
DIFC—Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd which is regulated by the Dubai Financial Services Authority as a Representative Office. For Professional Clients only. 
EEA—Unless indicated otherwise this material is issued and approved by T. Rowe Price (Luxembourg) Management S.à r.l. 35 Boulevard du Prince Henri L-1724 Luxembourg which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. For Professional Clients only. 
Hong Kong—Issued in Hong Kong by T. Rowe Price Hong Kong Limited, 6/F, Chater House, 8 Connaught Road Central, Hong Kong. T. Rowe Price Hong Kong Limited is licensed and regulated by the Securities & Futures Commission. For Professional Investors only. 
Indonesia—This material is intended to be used only by the designated recipient to whom T. Rowe Price delivered; it is for institutional use only. Under no circumstances should the material, in whole or in part, be copied, redistributed or shared, in any medium, without prior written consent from T. Rowe Price. No distribution of this material to members of the public in any jurisdiction is permitted. 
South Korea—This material is intended only to Qualified Professional Investors. Not for further distribution. 
Mainland China—This material is provided to qualified investors only. No invitation to offer, or offer for, or sale of, the shares will be made in the mainland of the People’s Republic of China (“Mainland China”, not including the Hong Kong or Macau Special Administrative Regions or Taiwan) or by any means that would be deemed public under the laws of the Mainland China. The information relating to the strategy contained in this material has not been submitted to or approved by the China Securities Regulatory Commission or any other relevant governmental authority in the Mainland China. The strategy and/or any product associated with the strategy may only be offered or sold to investors in the Mainland China that are expressly authorized under the laws and regulations of the Mainland China to buy and sell securities denominated in a currency other than the Renminbi (or RMB), which is the official currency of the Mainland China. Potential investors who are resident in the Mainland China are responsible for obtaining the required approvals from all relevant government authorities in the Mainland China, including, but not limited to, the State Administration of Foreign Exchange, before purchasing the shares. This document further does not constitute any securities or investment advice to citizens of the Mainland China, or nationals with permanent residence in the Mainland China, or to any corporation, partnership, or other entity incorporated or established in the Mainland China.  
Malaysia—This material can only be delivered to specific institutional investor. This material is solely for institutional use and for informational purposes only. This material does not provide investment advice or an offering to make, or an inducement or attempted inducement of any person to enter into or to offer to enter into, an agreement for or with a view to acquiring, disposing of, subscribing for or underwriting securities. Nothing in this material shall be considered a making available of, solicitation to buy, an offering for subscription or purchase or an invitation to subscribe for or purchase any securities, or any other product or service, to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the laws of Malaysia. 
New Zealand—Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. No Interests are offered to the public. Accordingly, the Interests may not, directly or indirectly, be offered, sold or delivered in New Zealand, nor may any offering document or advertisement in relation to any offer of the Interests be distributed in New Zealand, other than in circumstances where there is no contravention of the Financial Markets Conduct Act 2013. 
Philippines—ANY STRATEGY AND/ OR ANY SECURITIES ASSOCIATED WITH THE STRATEGY BEING DISCUSSED HEREIN HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE. ANY FUTURE OFFER OR SALE OF THE STRATEGY AND/ OR ANY SECURITIES IS SUBJECT TO REGISTRATION REQUIREMENTS UNDER THE CODE, UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION. 
Singapore—Issued by T. Rowe Price Singapore Private Ltd. (UEN: 201021137E), 501 Orchard Rd, #10-02 Wheelock Place, Singapore 238880. T. Rowe Price Singapore Private Ltd. is licensed and regulated by the Monetary Authority of Singapore. For Institutional and Accredited Investors only. 
South Africa—Issued in South Africa by T. Rowe Price International Ltd (TRPIL), Warwick Court, 5 Paternoster Square, London EC4M 7DX, is an authorised financial services provider under the Financial Advisory and Intermediary Services Act, 2002 (Financial Services Provider (FSP) Licence Number 31935), authorised to provide “intermediary services” to South African Investors. TRPIL’s Complaint Handling Procedures are available to clients upon request. The Financial Advisory and Intermediary Services Act Ombud in South Africa deals with complaints from clients against FSPs in relation to the specific services rendered by FSPs. The contact details are noted below: Telephone: +27 12 762 5000, Web: www.faisombud.co.za, Email: info@faisombud.co.za 
Switzerland—Issued in Switzerland by T. Rowe Price (Switzerland) GmbH, Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only. 
Taiwan—This does not provide investment advice or recommendations. Nothing in this material shall be considered a solicitation to buy, or an offer to sell, a security, or any other product or service, to any person in the Republic of China. 
Thailand—This material has not been and will not be filed with or approved by the Securities Exchange Commission of Thailand or any other regulatory authority in Thailand. The material is provided solely to “institutional investors” as defined under relevant Thai laws and regulations. No distribution of this material to any member of the public in Thailand is permitted. Nothing in this material shall be considered a provision of service, or a solicitation to buy, or an offer to sell, a security, or any other product or service, to any person where such provision, offer, solicitation, purchase or sale would be unlawful under relevant Thai laws and regulations. 
UK—This material is issued and approved by T. Rowe Price International Ltd, Warwick Court, 5 Paternoster Square, London EC4M 7DX which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only. 
USA—Issued in the USA by T. Rowe Price Associates, Inc., 1307 Point Street, Baltimore, MD 21231, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only. 
© 2025 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, the Bighorn Sheep design, and related indicators (troweprice.com/en/intellectual-property) are trademarks of T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners.

ID0008109 
202504‑4402885