Jefferies Warns of Tariff Headwinds for Heavy Manufacturers Following Caterpillar's Lead.

Jefferies expects other heavy manufacturers to face headwinds similar to Caterpillar due to new steel and aluminum tariffs. The firm has lowered Caterpillar estimates but maintains a Buy rating and $500 price target. Other heavy equipment makers such as Oshkosh, Terex, Deere, CNH Industrial, and Agco may also be impacted.

Jefferies analysts have warned that other heavy manufacturers, beyond Caterpillar, will face significant headwinds due to the recent 50% duty rate on "derivative" steel and aluminum products. This new tariff, introduced by the Department of Commerce, has expanded the reach of Section 232 sectoral tariffs to include over 400 product categories, including mobile cranes, bulldozers, compressors, and pumps [1].

The tariffs have been implemented as part of an investigation into the national security threat posed by steel and aluminum imports. The American Iron and Steel Institute supports these tariffs, noting their importance for military equipment, critical infrastructure, and emergency response needs [1]. However, the additional costs are expected to have a substantial impact on the construction and agricultural equipment industries.

Caterpillar, one of the two largest U.S.-based construction equipment manufacturers, has already reported that the tariffs will cost the company between $400 million and $500 million in the third quarter and between $1.3 billion and $1.5 billion for the full year [1]. Similarly, John Deere has projected tariff costs to rise to around $600 million for the fiscal year, with its construction equipment operating profit down 67% in the third quarter [1].

Other heavy equipment makers such as Oshkosh, Terex, Deere, CNH Industrial, and Agco are also expected to face similar challenges. Jefferies has lowered its estimates for these companies but maintains a Buy rating and a $500 price target for Caterpillar [1]. The increased costs are likely to lead to higher prices for machinery essential to building and maintaining infrastructure, as well as equipment needed for mining and farming.

The tariffs have also prompted responses from other countries. China has filed a complaint in the World Trade Organization against Canadian tariffs and steel tariff rate quotas, further straining the already tense trade relationship between the two nations [2]. This complaint is part of a growing list of World Trade Organization disputes involving Chinese steel exports.

In conclusion, the new steel and aluminum tariffs pose significant challenges for heavy manufacturers, potentially leading to increased costs and slower growth. Investors should closely monitor the impact of these tariffs on the financial performance of affected companies.

References:
[1] https://www.equipmentworld.com/regulations/article/15753669/new-50-tariffs-hit-construction-equipment-parts
[2] https://oilprice.com/Metals/Commodities/China-Challenges-Canadas-Steel-Tariffs-at-WTO.html