Industrial Machinery Facing Tariff Challenges

By Shivansh Tiwary and Nathan Gomes

(Reuters) – Industrial machinery makers are being affected by increasing costs due to U.S. President Donald Trump’s tariffs, with sluggish demand and high interest rates limiting their ability to pass these costs onto customers.

Caterpillar and Deere, leading companies in the sector, have reported significant hits related to tariffs this year, which they plan to absorb in the months ahead as market policies become uncertain.

Global companies reported a combined financial blow of $14.2 billion to $15.8 billion from tariffs for the full year, according to Reuters’ tariff tracker.

During their earnings calls, Caterpillar noted that tariffs on imported components and materials would pressure margins, while Deere highlighted rising costs for steel and other essential inputs for agricultural and construction equipment.

The new tariffs, part of Trump’s strategy to bolster U.S. manufacturing and reduce trade deficits, affect a broad array of industrial goods and raw materials.

Machinery manufacturers are handling a challenging demand landscape, as a shaky economic outlook and high borrowing costs lead customers to postpone significant capital investments.

Deere struggled to raise prices as expected in its construction and forestry units, while agricultural price increases were below forecasts, according to analyst Faisal Hersi from Edward Jones. This situation makes it more challenging to pass on rising expenses, unlike during the pandemic when strong farm incomes and infrastructure spending helped equipment makers offset disruptions.

Deere’s quarterly operating profit in construction & forestry dropped by roughly half from the previous year, while Caterpillar’s overall profit fell nearly 20%.

The tariff impact will be most significant in Deere’s Small Ag & Turf and Construction & Forestry units, with pricing strategies only partially mitigating the damage.

Although designed to promote domestic production, the tariffs have raised concerns among manufacturers dependent on global supply chains.

Deere anticipates a mere 1% price increase in its largest division, Production & Precision Agriculture, offering little buffer against typical cost inflation. Caterpillar is estimating up to $1.5 billion in tariff-related costs by 2025, including $400 million to $500 million in the third quarter alone, while slightly adjusting its revenue guidance above 2024 levels.

“Currently, inventory destocking is normal as demand cools, pressuring CAT and DE’s ability to implement higher prices onto customers,” said CFRA Research analyst Jonathan Sakraida.

On the demand side, Caterpillar is finding some comfort in its Energy & Transportation unit, which supplies engines, turbines, and locomotives across various sectors, somewhat balancing weaknesses in its Construction and Resource Industries segments.

Conversely, Deere, which relies more heavily on the farm equipment market, is experiencing a sharper decline, with sales down nearly 18% this year alone.

Caterpillar’s power generation business is maintaining pricing stability to avoid deep discounting for inventory clearance, whereas Deere is expected to adopt a more aggressive pricing approach in Brazil as those markets enter recovery, according to Sakraida.

As the world’s largest farm equipment manufacturer, Deere anticipates $600 million in tariff impacts this year—$100 million higher than previous estimates—and has revised its annual profit forecast downward twice this year due to declining farm equipment sales affecting results.