Tariffs: $1.7 Billion in 2025, $2.2 Billion Guided for 2026Narrow moat

Caterpillar (CAT) — moat facet

Tariffs cost Caterpillar about $1.7 billion in 2025 and will cost about $2.2 billion in 2026, a bill no moat can refuse.

Tariffs became a new cost of well over a billion dollars in 2025. Management described net incremental tariff headwinds of $1.7 billion for the year1, and the annual report expected tariffs of around $2.6 billion in 2026, "$800 million higher than incurred in 2025"2. Without planned mitigating actions, it said, the impact "could be around 20 percent higher"3.

Tariff costs ($bn)1.72025 net headwind2.62026, January guide2.22026, August guide1.0IEEPA total paid0.39IEEPA recovered Q2Caterpillar Q4 2025 call; Form 10-K FY2025; Form 10-Q and release Q2 2026
A court refunded part; most remains.

Part of the cost has proved temporary. On 20 February 2026 the Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act were unauthorized; Caterpillar's total IEEPA tariff costs had been approximately $1.0 billion4. Operating profit in the second quarter of 2026 included $392 million of expected IEEPA tariff recoveries5.

The rest remains. Excluding those recoveries, Caterpillar now expects 2026 tariff costs of around $2.2 billion6, and around $600 million in the third quarter alone, similar to a year earlier7. About half falls on Construction Industries and a quarter each on Power & Energy and Resource Industries8.

Caterpillar's moat cannot defend against this cost; it can only pass it on. That is where the pricing question and the tariff question meet: in 2025 the company absorbed most of the tariff and cut price in construction at the same time.

The guidance has come down twice. In January the company expected about $2.6 billion9; in April it cut the range to $2.2 billion to $2.4 billion10; in August it expected around $2.2 billion, excluding the recoveries, and described that as the low end of the earlier range1112.

The annual tariff figure is the number to follow. A 2026 cost near $2.2 billion with operating margin still rising would show that pricing is covering it; a higher cost, or new tariffs after the IEEPA ruling, would push the adjusted margin back toward 2025's 17.2%.

Moat trajectory: Holding steady

2026 tariff cost guided around $2.2bn, down from $2.6bn in January.

The number that tests this moat
Reported
Tariff costs, current-year guidance
Around $2.2bn for 2026, excluding IEEPA recoveries (Q2 2026 10-Q)

The cost pricing must cover; a rising figure would push margins back toward 2025 levels.

Source: Caterpillar Form 10-Q, Q2 2026 ↗
⚠ Threats to the moat
⚠ THREAT 01
Trade Policy Is Set Elsewhere
A cost of more than $2 billion a year in Caterpillar's accounts is set by governments, and a court refund does not stop them setting a new one.
References
  1. ReportedManagement described net incremental tariff headwinds of $1.7 billion for the year, and the annual report expected tariffs of around $2.6 billion in 2026, "$800 million higher than incurred in 2025".
    Caterpillar fourth-quarter 2025 earnings call transcript (company PDF) - services revenues, tariff headwinds, power generation, autonomous trucks and the AIP order. — Q4 2025 · publ. 29 January 2026 · source ↗
  2. ReportedManagement described net incremental tariff headwinds of $1.7 billion for the year, and the annual report expected tariffs of around $2.6 billion in 2026, "$800 million higher than incurred in 2025".
    Caterpillar Form 10-K for fiscal 2025 - Item 7 MD&A: consolidated results, sales and profit bridges, tariffs, dealer inventory and the 2026 outlook. — FY2025 · publ. 13 February 2026 · source ↗
  3. ReportedWithout planned mitigating actions, it said, the impact "could be around 20 percent higher".
    Caterpillar Form 10-K for fiscal 2025 - Item 1 business: history, products, Cat Financial, employees and order backlog. — FY2025 · publ. 13 February 2026 · source ↗
  4. ReportedOn 20 February 2026 the Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act were unauthorized; Caterpillar's total IEEPA tariff costs had been approximately $1.0 billion.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  5. ReportedOperating profit in the second quarter of 2026 included $392 million of expected IEEPA tariff recoveries.
    Caterpillar second-quarter 2026 results release, Form 8-K exhibit 99.1 - consolidated results, cash deployment and the CEO's statement. — Q2 2026 · publ. 4 August 2026 · source ↗
  6. ReportedExcluding those recoveries, Caterpillar now expects 2026 tariff costs of around $2.2 billion, and around $600 million in the third quarter alone, similar to a year earlier.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  7. ReportedExcluding those recoveries, Caterpillar now expects 2026 tariff costs of around $2.2 billion, and around $600 million in the third quarter alone, similar to a year earlier.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  8. ReportedAbout half falls on Construction Industries and a quarter each on Power & Energy and Resource Industries.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  9. ReportedIn January the company expected about $2.6 billion; in April it cut the range to $2.2 billion to $2.4 billion; in August it expected around $2.2 billion, excluding the recoveries, and described that as the low end of the earlier range.
    Caterpillar Form 10-K for fiscal 2025 - Item 7 MD&A: consolidated results, sales and profit bridges, tariffs, dealer inventory and the 2026 outlook. — FY2025 · publ. 13 February 2026 · source ↗
  10. Third-party estimateIn January the company expected about $2.6 billion; in April it cut the range to $2.2 billion to $2.4 billion; in August it expected around $2.2 billion, excluding the recoveries, and described that as the low end of the earlier range.
    TIKR blog on Caterpillar's first-quarter 2026 results - large engine capacity target raised to nearly three times 2024, 2030 growth target of 6% to 9%, frame agreements and gigawatt-scale customers. — Q1 2026 · publ. May 2026 · source ↗
  11. ReportedIn January the company expected about $2.6 billion; in April it cut the range to $2.2 billion to $2.4 billion; in August it expected around $2.2 billion, excluding the recoveries, and described that as the low end of the earlier range.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  12. ReportedIn January the company expected about $2.6 billion; in April it cut the range to $2.2 billion to $2.4 billion; in August it expected around $2.2 billion, excluding the recoveries, and described that as the low end of the earlier range.
    The Motley Fool, Caterpillar Q2 2026 earnings call transcript and summary - lead times, backlog delivery, rental demand, Wamego, the 10-megawatt engine restart and Skycatch. — Q2 2026 · publ. 11 August 2026 · source ↗
Sources
Generated September 25, 2026