‘Nuanced’ tariffs a headache for equipment manufacturers

Expanded Section 232 tariffs on steel components are creating cost pressures, uncertainty, compliance risks and price hikes for equipment manufacturers and importers. 

Equipment manufacturers like Oshkosh continue to assess the tariff impact on steel components, as the complexity requires detailed analysis of bills of materials and supply tiers, Executive Vice President and Chief Financial Officer Matthew Field said during the Jefferies Mining and Industrials Conference on Sept. 4. 

“These are very nuanced tariffs, and these are on the steel components within something you buy,” he said. “You’ve really got to start digging into all your bill of materials and try to figure out: How does that compute?” 

Meanwhile, tariff-driven cost increases and uncertainty along with slowing demand are constraining U.S. manufacturing, leading to layoffs, reduced hiring and hesitation to make new investments, despite resilient consumer spending and CapEx, according to a Sept. 2 Wells Fargo research note. 

“Uncertainty around tariff policy is limiting activity,” the note stated. “While the higher costs associated with tariffs are a challenge, the uncertainty around where tariffs ultimately land is likely more so limiting current activity today.” 

Tariff-driven price hikes 

In fact, 81% of businesses indicated that they would increase their prices over the next six months due to the complex and nuanced tariffs, according to a recent KPMG survey of 300 executives. In fact, 19% of the companies surveyed said they would increase their prices by at least 15% because of tariffs. 

For U.S. equipment and parts importers, the 50% steel and aluminum derivative tariffs heavily affect engines and assemblies with high metal content. This is prompting suppliers to disclose steel and aluminum values under the administration’s stacking rules, although doing so is a lot of work, George Zaharatos, principal analyst for trade and customs at KPMG Tax, told Equipment Finance News. 

“In cases where they’re not able to identify the specific steel and aluminum content, CBP [U.S. Customs and Border Protection] will apply tariffs on the full value of the products listed on the steel and aluminum derivatives list,” he said.  “Importers are also identifying U.S. steel and aluminum in products that are exempt from the tariffs altogether, but [it] is complicated to trace in many cases.” 

Goods misclassification a compliance risk 

In addition, misclassifying parts and machinery poses a major compliance risk, Zaharatos said. 

“From an enforcement perspective, CBP has been instructed to apply penalties without the availability of long-established mitigation guidelines,” he said. “Misclassifications can lead to very costly fines and penalties.” 

According to the CBP: 

• Violations can incur penalties up to the merchandise’s 100% or full domestic value, 

• Gross negligence, up to the lesser of four times unpaid duties or 40% of dutiable value, and  

• Negligence, up to the lesser of twice unpaid duties or 20% of dutiable value. 

As a result, large shipments of misclassified goods can cause millions of dollars in fines and penalties, while proper classification expectations result in millions to billions of dollars in tariff costs for OEMs such as Caterpillar. 

Still, OEMs do have options to reduce the overall impact of tariffs on the equipment industry. The complexity of machinery and equipment creates opportunities for tariff mitigation through careful classification, origin analysis, valuation, and strategic planning, such as first sale for export, KPMG’s Zaharatos said. 

Check out our exclusive industry data here.