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Trade & Tariffs

Retaliatory Tariff Crossfire: Why Deere and Caterpillar Lose When the Soybean Gets Taxed

When trading partners hit back at U.S. tariffs by taxing American agriculture, farm income collapses and equipment orders evaporate — and DE and CAT pay the collateral price.

Image: Money Racket
By at Money Racket · May 20, 2026

The Mechanism

Washington raises tariffs on imported goods. Trading partners retaliate by targeting the most politically painful U.S. exports they can find: agricultural commodities. Soybeans, sorghum, corn — the crops that anchor Midwest farm income — become bargaining chips. When those retaliatory levies land, U.S. crop prices soften, farm receipts fall, and farmers do what they always do when margins compress: they stop buying big iron. That deferred capital spending cascades directly into the order books of the two largest American farm and construction equipment makers, Deere and Caterpillar. This is not a hypothetical. China slapped a 10% retaliatory tariff on American farm equipment in February 2025 alongside broader agricultural retaliation. The collateral-damage trade was already in motion before the ink dried.

Farmers running negative per-acre margins do not place new equipment orders — and Deere and Caterpillar are the first to feel it.

Who Cashes In

NUE (Nucor) and STLD (Steel Dynamics) operate domestic steel mills that benefit from the same tariff architecture that burdens equipment makers. Section 232 steel tariffs raise the cost of imported steel, redirecting industrial demand toward domestic producers. When construction and ag-equipment OEMs pull back production, the steel mills feel less pressure on volume — but the tariff floor under domestic steel pricing holds, protecting margins. Both run lean, non-union operations with strong free cash flow generation through the cycle.

CLF (Cleveland-Cliffs) is the more direct play: the largest domestic flat-rolled steel producer, with auto-grade and plate steel that substitutes for imports. A tariff regime that structurally disadvantages foreign steel keeps CLF's order book competitive even as end-market demand softens.

Who Is Exposed

DE (Deere & Company) is the clearest loser in this chain. Large ag equipment sales in the U.S. and Canada were projected down 15–20% in fiscal 2026, with combine sales falling more than 50% year-over-year in some months. Deere absorbed roughly $600 million in tariff costs in fiscal 2025 and projected that figure to double to approximately $1.2 billion in fiscal 2026 — absorbing input cost inflation on one end while watching unit demand collapse on the other. Farm cash receipts for soybeans alone were forecast to drop by more than $3 billion in 2025. Farmers running negative per-acre margins do not place new equipment orders.

CAT (Caterpillar) faces a parallel squeeze. Beyond its construction equipment exposure, Caterpillar sells into the same rural capital-spending cycle that contracts when farm income falls. The company flagged tariff costs running as high as $1.5–$2.4 billion in fiscal 2026. Caterpillar's construction segment in North America also faces softer agricultural infrastructure spend when farm balance sheets are stressed.

What to Watch

The key signal is the USDA's net farm income revision — any downward cut to that number is a leading indicator of DE and CAT order cancellations in subsequent quarters. Watch Deere's quarterly order commentary on large row-crop equipment specifically. On the steel side, track hot-rolled coil (HRC) spot prices and domestic capacity utilization rates: if utilization stays above 75% while import volumes fall, NUE and STLD's margin story holds. The retaliatory tariff risk is not symmetrical — agricultural exporters absorb the first blow, equipment makers absorb the second, and domestic material producers pocket the margin created in between.

Source: original report ↗

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