New Tariff Impact 2025: Caterpillar And Deere Are Under Pressure

Caterpillar and John Deere, two of the largest companies in the construction and agricultural machinery sector, are at the heart of the current upheaval in the market. Both businesses are facing reduced pricing power and thinner margins than during the pandemic years as a result of new tariffs that are driving up the cost of imported components and an uncertain economic outlook that is slowing down consumer demand.

Wrong time, wrong implementation 

The goal of President Trump’s new trade policies is to boost American manufacturing, but for multinational machinery manufacturers like Deere and Caterpillar, the reality has been harsh. 

Global supply chains are a major source of steel, components, and other raw materials for both businesses. They are now absorbing hundreds of millions of dollars in additional costs as a result, which are difficult to pass on to clients.

Caterpillar has informed investors that tariffs could cost the company up to $1.5 billion this year, with the third quarter alone bearing almost half of that cost. With a greater exposure to the farm equipment market, Deere anticipates tariff-related expenses of about $600 million, an increase of $100 million from previous projections. Both businesses are under pressure to find ways to lessen the impact of these startling numbers, especially since demand is already declining.

High borrowing rates makes low demands of equipment

These tariff increases come at the worst possible time. Due to the high cost of financing new equipment due to high interest rates, customers in the construction, agricultural, and forestry sectors are reducing their expenditures on large purchases. Manufacturers are having fewer opportunities to raise prices as a result of the market’s widespread inventory destocking.

For Deere, the situation has been particularly difficult. The business has had difficulty raising prices in its forestry and construction divisions, while its agriculture division only saw modest gains that were below expectations. Operating profit for the construction and forestry division of Deere has decreased to almost half of what it was the previous year. Despite a marginal improvement, Caterpillar still reported a nearly 20% drop in operating profits overall.

Caterpillar is at relief at some sectors

Caterpillar’s business isn’t suffering everywhere. An uncommon bright spot has been the company’s Energy & Transportation division, which manufactures locomotives, turbines, and engines for sectors like rail and power generation. Caterpillar construction equipment has maintained its revenue guidance slightly above 2024 levels despite rising tariff costs due to strength in this segment offsetting weakness in its resource and construction industries divisions.

Deere, on the other hand, has experienced a more noticeable slowdown due to its greater reliance on the farm equipment market. Due to a nearly 18% decline in sales so far this year, the largest manufacturer of agricultural machinery in the world has had to reduce its annual profit projection twice. In order to reduce costs, Deere has also taken drastic measures, firing over 1,800 ground crew members and substituting them with contractors.

What’s ahead to consider

The most recent tariff round emphasizes how hard it is for manufacturers of heavy machinery to strike a balance. Global manufacturers are left with higher input costs during a period of already weak demand, despite the levies’ stated goal of promoting domestic production. Caterpillar has some protection from the downturn thanks to its robust energy segment and varied business mix. For Deere, the road appears to be more difficult because their fortunes are more directly linked to agriculture.

Instead of risking further losses by raising prices, both companies are expected to continue to absorb a large portion of the tariff impact as 2025 progresses. 

This may result in a period of comparatively stable prices for contractors, farmers, and equipment buyers, but it also means lower margins and more lean operations for the major players in the market.

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