Analysis
Following the introduction of "Liberation Day" reciprocal tariffs in April 2025, John Deere has experienced a significant increase in production costs and margin pressure. For fiscal year 2025, the company reported a pre-tax tariff impact of nearly $600M, primarily driven by duties on imports from Europe, India, and Japan, as well as increased costs for steel and aluminum. This headwind intensified in the first quarter of 2026, with direct pre-tax tariff expenses reaching $361M, which was the primary driver for a decrease in net income during the period. The company currently projects a total pre-tax tariff hit of $1.2B for the full fiscal year 2026, representing a $600M incremental increase over the previous year.
The tariff impact is particularly acute in the Construction and Forestry (CNF) segment, which faces exposure from road building equipment manufactured in Germany and excavators sourced through supply agreements from Japan. Additionally, the segment relies on a mature supply base in China for approximately 40% of earthmoving components. While the Production and Precision Agriculture (PPA) segment is less exposed to finished good imports, it faces a projected 150bps margin headwind for FY2026 due to component and material costs. Management has noted that while customer demand remains resilient in some areas, the uncertainty surrounding trade policy has weighed on new equipment replacement demand as producers wait for further clarity on trade deals.
To mitigate these impacts, John Deere is implementing several supply chain and pricing strategies. The company is transitioning its excavator production to the United States, with new Deere-designed and U.S.-manufactured models expected to reduce dependence on Japanese sourcing over the next few years. On the pricing front, the company aims to remain price-cost positive in 2026 by taking measured price increases, such as the 3% adjustment seen in early order programs for the PPA business. A significant recent development occurred on February 20, 2026, when the United States Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act (IEEPA), which may provide future tariff relief and the potential recovery of duties previously paid. John Deere is currently evaluating the financial implications of this ruling.
Data
($M)
| Period | Pre-Tax Tariff Impact |
|---|---|
| FY2025 | $600 |
| 1Q2026 | 361 |
| FY2026E Guidance | 1,200 |
Source: Company filings, Marvin Labs
Financial Impact
- Cost Impact (Historic): $961M
- Cost Impact (Forward-Looking): $1.2B
Sources
So it's $1.2bn is the pre-tax tariff hit in 2026. That's about $600mn incremental from the $600 million that we saw in 2025.
The direct impact of incremental tariffs incurred by us was $361 in the first quarter of 2026, excluding the impact of tariffs on our suppliers and market demand.
Incremental import tariffs adversely affected the cost of our products and components beginning in the third quarter of 2025 and are expected to continue to do so in 2026.