Construction equipment manufacturers and dealers were dealt a blow last week with the introduction of a 50% duty rate on “derivative” steel and aluminum products covered by Section 232 sectoral tariffs.
The additional 407 product categories announced by the Department of Commerce on August 19 included mobile cranes, bulldozers and other heavy equipment, compressors and pumps, and hundreds of other products.
“Today’s action expands the reach of the steel and aluminum tariffs and shuts down avenues for circumvention – supporting the continued revitalization of the American steel and aluminum industries,” Under Secretary of Commerce for Industry and Security Jeffrey Kessler said.
The action comes as the result of an investigation into steel and aluminum imports and whether the quantity or circumstances of those imports threaten U.S. national security, with the American Iron and Steel Institute saying, “Section 232 recognizes that steel is essential for military equipment, critical infrastructure and emergency response needs. Keeping these tariffs in place helps ensure that America is not reliant on foreign imports in times of national security threats and crises.”
Associated Equipment Distributors submitted comments opposing the inclusion of more than 130 HTS codes impacting its members.
In a statement to Equipment World, AED President and CEO Brian McGuire said:
"The Department of Commerce’s decision to apply the Section 232 steel and aluminum tariffs to construction, agriculture, and material handling equipment, and other related products, will negatively impact equipment dealers, manufacturers, and their customers. Unfortunately, American companies and workers will endure the consequences of these actions. The result will be unnecessarily higher costs for machinery essential to building and maintaining infrastructure—such as roads, bridges, water systems, and pipelines—as well as equipment needed for mining critical minerals and tractors that farmers rely on to feed America."
OEMs Feel the Pain
At last week's Public Works Expo, one European-based manufacturer told us, “Fifteen percent tariffs we could find a way to absorb; the tariffs announced today could be detrimental to our business here.”
Even before the latest tariff hike, the two largest U.S.-based construction equipment manufacturers, Caterpillar and John Deere, both reported tariffs as a drag on revenue in a slower market. They projected more pain ahead for the year.
Caterpillar CEO Joe Creed said during an earnings call earlier this month that tariffs are expected to 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. Construction industry sales came in at $6.2 billion in the second quarter, down 7% year-over-year.
Deere reported during its third-quarter earnings call August 14 that tariff costs have risen to around $300 million for the year so far, and it forecasts its full fiscal-year tariff impact to rise to around $600 million. The company reported that its construction equipment operating profit was down 47% in the third quarter to $237 million and down 60% for the first three quarters of the fiscal year to $681 million.
Japan-based Kubota reported a $340 million year-over-year drop in in its second quarter this month. Kubota said tariffs caused $28 million in additional costs during the three-month period.
CNH Industrial, corporate parent of Case and New Holland, said during its second-quarter earnings call that it expected a bigger tariff hit in the second half of the year as it moves through pre-tariff inventory. For the first six months of the year, the United Kingdom-based company’s construction net sales were down 17% to $1.4 billion.
Construction equipment manufacturers have been trying to raise prices to make up the additional costs; however, increased competition has made that difficult. The companies have been reporting drops in price realization, which measures the net difference between the listed price and the actual sale price.
Construction Equipment Impacted by Section 232 Tariffs
A complete list of the 407 product categories added to the steel and aluminum tariffs is in the annex to a Federal Register notice, available here. Codes related to construction equipment, attachments and components include, but are not limited to:
8407/8408/8409 – Spark-ignition reciprocating or rotary internal combustion piston engines, compression-ignition internal combustion piston engines or parts for use with engines with headings 8407 or 8408
8412– Other engines, motors and their parts
8413 – Fuel, lubricating or cooling medium pumps for internal combustion piston engines, other hydraulic pumps and their parts
8426 - Ship's derricks; cranes; mobile lifting frames, straddle carriers and works trucks fitted with a crane
8427 – Forklift trucks and other work trucks fitted with lifting or handling equipment
8429 – Bulldozers, angle-dozers, graders, leveling machines, scrapers, tampers, road rollers, front-end loaders, mechanical shovels, excavators and shovel loaders
8430 – Other machinery for moving, grading excavating and boring machinery for earth, minerals, ores; pile drivers and pile excavators; snowplows and snowblowers
8431 – Parts suitable for use with the machinery of heading 8425 to 8430
8433 – Harvesting or threshing machinery, including straw or fodder balers; grass or hay mowers for lawns, parks or sports grounds with horizontal rotating cutters; or other mowers, including cutter bars for tractor mounting; and parts
8474 – Machinery for sorting, screening, separating, washing, crushing, grinding, mixing or kneading earth, stone, ores or other mineral substances
8483 - Transmission shafts and cranks; bearing housings, housed bearings etc.; gears and gearing; ball and roller screws; clutches, etc.; and parts
8501 – Electric motors and generators (excluding generating sets)
8503 - Parts for electric motors, generators, generating sets and rotary converters
8701 – Tractors (other than work trucks of heading 8709); track-laying tractors
8705 - Special purpose motor vehicles, including wreckers, mobile cranes, fire fighting vehicles, concrete mixers, mobile workshops, etc.
8708 - Parts and accessories of the motor vehicles of headings 8701 to 8705, including gear boxes, mufflers and exhaust pipes, clutches, etc.
"Auto parts, chemicals, plastics, furniture components — basically, if it's shiny, metallic or remotely related to steel or aluminum, it's probably on the list," Brian Baldwin, vice president of customs at Kuehne + Nagle International AG wrote on LinkedIn. "This isn't just another tariff — it's a strategic shift in how steel and aluminum derivatives are regulated."
For its part, the White House says these levies shouldn’t come as a surprise.
"The president called for a new steel and aluminum product inclusions process in February," says Kush Desai, White House spokesperson. "[The Bureau of Industry and Security] established the new product inclusions process in April, and companies submitted requests for product inclusions in mid-May. Thus, it has been clear for many months that new products could be treated as steel and aluminum derivatives."
The Department of Commerce says another window for submitting inclusion requests will open in September. It will be announced in the Federal Register.
