How Deere Plans to Offset $500 Million Tariff Impact in 2025
Explore Deere’s strategic moves to absorb $500 million in tariff costs through supply chain tweaks, selective price hikes, and $20 billion U.S. manufacturing investments amid weak farm equipment demand.
Key Takeaways
- Deere faces $500 million in tariff costs in fiscal 2025
- Supply chain shifts and USMCA certifications help reduce tariff exposure
- Selective price hikes of 2%-4% planned for 2026 equipment
- Deere commits $20 billion to U.S. manufacturing over next decade
- Weak farm equipment demand limits aggressive price increases
John Deere, the titan of farm and construction equipment, is navigating a $500 million tariff storm in fiscal 2025. These tariffs, imposed on imports from countries like China, Germany, and Mexico, squeeze Deere’s margins amid already soft demand from farmers battling lower crop prices and rising costs. The company’s response is a masterclass in strategic resilience: reshuffling production footprints, renegotiating supply contracts, and selectively raising prices. Deere’s CFO Josh Jepsen admits the timing is tough, but the company is also leveraging trade agreements like the USMCA to dodge some tariffs. With a bold $20 billion investment plan to boost U.S. manufacturing, Deere is betting on long-term strength. This article unpacks Deere’s multi-pronged approach to offset tariff costs, revealing lessons for businesses facing trade headwinds.
Facing $500 Million Tariffs
Imagine a giant like Deere suddenly hit with a $500 million extra bill just for bringing parts and equipment into the U.S. That’s the reality Deere faces in fiscal 2025, thanks to tariffs imposed on imports from China, Germany, Mexico, and other countries. In the quarter ending April 27, 2025 alone, Deere shelled out about $100 million in tariff expenses, with another $400 million expected by October. These tariffs hit Deere’s construction and forestry equipment hard—think German-made Wirtgen road machines and excavators with Japanese parts. Even Deere’s small tractors and landscaping gear aren’t spared, facing softened demand alongside these added costs. It’s like running a marathon with a backpack full of bricks—every step costs more energy and money.
Yet Deere isn’t just sitting on the sidelines. The company produces 79% of its U.S.-sold equipment domestically and sources 76% of components from U.S. suppliers, but the global supply chain still exposes it to tariffs. About 10% of components come from Mexico, where tariffs also apply unless exemptions are secured. Deere’s CFO Josh Jepsen calls the timing “not great,” with tariffs adding pressure during a market already depressed by lower crop prices and higher production costs. This section sets the stage for understanding why Deere’s tariff challenge is both a financial and strategic puzzle.
Optimizing Supply Chains
When tariffs hike costs, the first instinct is to find smarter ways to source and produce. Deere is doing just that by reshuffling production within its existing factories worldwide and renegotiating supply contracts to squeeze out efficiencies. For example, some sourcing is shifting from China to Mexico and other countries to tap into tariff exemptions under the U.S.-Mexico-Canada Agreement (USMCA). This trade pact allows qualifying goods to cross borders tariff-free, but Deere had to complete certificates it hadn’t finalized before to claim these benefits.
This supply chain optimization isn’t about building new factories overnight but tweaking the existing footprint to dodge tariffs where possible. It’s like rerouting a road trip to avoid tolls—sometimes a small detour saves big money. Deere’s CFO notes these changes are “generally on the margins,” but every bit counts when facing half a billion dollars in extra costs. This approach also helps Deere stay competitive in export markets, where retaliatory tariffs could hit U.S.-made goods. Supply chain agility is Deere’s frontline defense against the tariff storm.
Selective Price Adjustments
Raising prices when customers are already tightening belts is a delicate dance. Deere knows this well. Despite the tariff hit, the company has been cautious about passing costs directly to buyers, mindful that farmers face lower crop prices and higher expenses. Yet, some price increases are inevitable. Deere has already rolled out 2% to 4% price hikes for sprayers and planters in its early 2026 order program, mainly driven by inflation but also influenced by tariffs.
Deere’s CFO Josh Jepsen explains that while the company hasn’t added explicit tariff surcharges yet, it reserves the right to adjust prices before orders are placed. Once a customer commits, Deere honors the price, showing respect for buyer certainty amid uncertainty. This measured approach reflects Deere’s balancing act: protecting margins without scaring off customers. Industry experts note that Deere’s pricing power is limited, given recent inflation-driven hikes and weak demand. Still, tariffs leave Deere little choice but to nudge prices upward where possible, proving that sometimes, tough times call for tough decisions.
Investing in U.S. Manufacturing
Looking beyond immediate tariff pain, Deere is making a bold bet on the future by committing $20 billion over the next decade to expand U.S. manufacturing. This massive investment aims to reduce reliance on foreign components and finished goods vulnerable to tariffs. Think of it as building a fortress at home to shield against global trade battles.
By producing more equipment domestically, Deere can sidestep many import tariffs and gain greater control over its supply chain. This move also supports American jobs and aligns with broader economic trends favoring reshoring. Industry analysts highlight that Deere’s ability to relocate production—such as moving midsize tractor manufacturing from Germany to the U.S.—gives it flexibility to respond to tariff pressures. This long-term strategy complements short-term cost-cutting and pricing moves, positioning Deere to weather trade uncertainties with resilience and competitive strength.
Navigating Market Headwinds
Tariffs aren’t Deere’s only challenge. The farm equipment giant faces weak demand as farmers grapple with lower crop prices, rising production costs, and cautious capital spending. Deere expects a 10% to 15% drop in sales of small tractors and landscaping equipment in 2025, revising earlier forecasts downward. This soft demand tempers Deere’s appetite for aggressive price hikes, creating a tricky balancing act.
Farmers who own land may still turn profits this year, but uncertainty clouds their willingness to invest in big-ticket equipment. Deere’s CFO calls the timing of tariffs “not great,” adding pressure to an already challenging market. Despite these headwinds, Deere saw a sales rebound in Q2 2025 compared to the previous quarter, helped by U.S. government aid and improved liquidity. This resilience shows Deere’s ability to adapt, but the company remains cautious. For Deere and its customers, the tariff saga is a reminder that in farming and finance alike, timing is everything.
Long Story Short
Deere’s $500 million tariff challenge is no small hurdle, but the company’s strategy blends pragmatism with foresight. By optimizing supply chains, certifying products under USMCA, and cautiously adjusting prices, Deere balances cost pressures with customer realities. The hefty $20 billion domestic investment signals a commitment to reducing future tariff risks and supporting American manufacturing. For investors and industry watchers, Deere’s approach underscores the importance of agility in a volatile trade environment. While tariffs and weak demand weigh on profits, Deere’s resilience shines through its operational tweaks and strategic bets. The lesson? In a world of trade uncertainties, smart adaptation beats panic. Deere’s journey offers a roadmap for companies aiming to turn tariff troubles into competitive advantage.