Function implementation that returns literal types is not assignable to widened overload

TypeScript Version: 3.8.3

Search Terms: overload widen literal

Code

function foo(x: string): string;
function foo(x: number): number;

function foo(x: string | number) {
    if (typeof x === 'string') return 'foo';
    return 23;
}

Expected behavior: Implementation satisfies overloads.

Actual behavior: The first overload throws an error that it doesn't match the implementation. Doesn't matter which overload comes first.

Playground Link

If I widen the literals in the implementation by casting them then everything works fine.

Related Issues: https://github.com/microsoft/TypeScript/issues/37393

Start by reproducing the overload example in the linked TypeScript Playground and compare it with the version using widened literal casts. Trace the implementation-compatibility check for overloads; done means the shown implementation satisfies both overloads without casts, with coverage for this regression.