What could be causing TypeScript to infer an empty object in this straightforward scenario?

Experience this live showcase.

Presented with the code below:

type Transformer<T> = (t: T) => T;
const identity = <T>(a: T) => a;

interface HardInferenceFn {
    <T>(value: T, transform: Transformer<T> | T): T
}
declare const hardInference: HardInferenceFn;

const myTransformedValue = hardInference('foo', identity);

Evidently, the type of myTransformedValue should be string, but it currently appears as an empty object.

After some experimentation, I discovered that including | T around the transform parameter is causing confusion for tsc. If we remove it, then myTransformedValue will have the expected type.

What is causing this issue? Additionally, is there a method to assist tsc by specifying to infer solely based on the first parameter and not the second one, which seems to be the source of confusion?

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