U.S. Tariffs Could Dampen Hopes for a Stable 2025 for Industrial Equipment and Construction

President Trump this week signed an order imposing a 25% tariff on all imports of steel and aluminum, without exceptions, to take effect on March 12. The construction industry is the largest consumer of steel (estimated at 50% of total output), followed by the automotive and equipment industries at about 30%. These tariffs are certain to send a blow to these industrial sectors, which are heavily reliant on North America's intertwined supply chains.

Key highlights include the following:

-- If the proposed tariffs remain in place for a prolonged period, they could cause planned projects to be deferred or suspended. As such, we would expect an adverse revenue impact for construction and machinery firms.
-- Contractors with signed fixed-price contracts where cost escalation is not accounted for will be under significant margin pressure.
-- Issuers may moderately increase the amount of short-term debt in a period of weaker earnings and potentially delay cash collection if the proposed tariffs come into effect.

"We believe most of our rated investment-grade issuers could navigate this challenging period through their project and supply chain diversity and strong negotiating capabilities with customers. However, we expect smaller players to be under increased pressure," said Margaret Rabba, Vice President, Diversified Industries.