M SCIENCE BLOG

How Tariffs
May Impact
Industrial Sectors

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Alex Prudhomme

Senior Research Analyst
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Incoming President Donald J. Trump has proposed implementing tariffs during his next administration. If enacted, this policy could alter how the U.S. processes imports and exports across various industries, particularly in the Industrials sector.

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Overseas Manufacturing 

Over the last several decades, some manufacturers have vacated their domestic factories, opting instead for countries with lower labor costs, weaker environmental protections, and greater availability of raw materials. As a result, many industrial businesses have established new or expanding operations throughout Asia and Latin America. 

Recently, companies have turned their focus to Mexico. Senior Research Analyst Alex Prudhomme identifies several reasons for this shift.

 

  1. Politics: “The theme of moving production to Mexico has become a lot more popular as a response to Trump tariffs on China during his first administration,” Prudhomme explained.
  2. Location: “The proximity to the U.S. is great. It’s easier than, perhaps, making something in a similarly low-cost country in Asia, then shipping it by boat,” he added.
  3. Pandemic Effects: “When we had limited access to maritime trade, product was sitting for months. Shipping by air is very expensive. So, there’s been a general idea of needing to have manufacturing capacity in North America to serve North American customers, and within North America, Mexico often presents manufacturers with the best return on investment,” he said.

Effects of Import Tariffs

Uncertainty remains regarding the specifics of potential regulations—what they might entail, which countries they could target, or whether they will materialize at all. However, a 10–20% tariff on U.S. imports from Mexico could have serious implications.

“Several players are manufacturing a very high percentage of their production in Mexico. This would certainly lead to higher pricing within that market,” Prudhomme said. “There may be clear winners and losers just based on how companies have set up their manufacturing footprints, which are difficult to change in a short-term horizon.”

So, which industries might feel the impact most? Prudhomme highlights several sectors.

“For Mexico, if the tariffs are broad-based and not targeted on specific industries, the industrial verticals most impacted within M Science’s coverage
would be automotive and commercial vehicles. That’s the largest export sector from Mexico to the U.S.,” he said.

The electrical equipment industry also appears particularly vulnerable due to its reliance on Mexico, China, and other international suppliers. “We analyzed U.S. imports from outside of Mexico, and what types of goods are typically imported. Affected products include devices like phones, but even when you cross that out, there’s high exposure to switch gear, such as fuse boxes or switches used in autos and commercial vehicles,” Prudhomme said.







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Relative Winners and Losers of the Trade War

A restructured tariff system could exacerbate disparities in reliance on imported goods among companies, creating relative underperformers and outperformers across the industrials sector. This potential shift might disrupt market dominance and pose risks for certain brands, particularly those already criticized by President Trump for their overseas practices.

“President Trump has made direct comments about John Deere, which moved some production from the U.S. into Mexico,” Prudhomme said. According to M Science, approximately 75% of John Deere’s production remains domestic. “Historically, Carrier has been directly named by Trump, along with several automotive companies. If there are targeted tariffs, those companies might be more at risk.”

The HVAC market is a notable example of these dynamics. Prudhomme elaborated on the risks to Carrier and other major industry players. “It would certainly be one of the companies we would expect to underperform the market, along with Lennox. Both companies have moved a substantial percentage of their overall production into Mexico,” he said.

Meanwhile, competitors with less exposure to Mexican manufacturing could benefit. “The beneficiary on the other side of the HVAC market would be companies like Johnson Controls, and to a modestly lesser degree Trane Technologies. Johnson Controls has a pretty limited footprint in Mexico for the HVAC business. It’s not a material manufacturing base for them, so we’d expect them to take market share in that type of environment,” Prudhomme noted.

Prudhomme observes a similar dynamic within the commercial vehicle sector. Daimler Truck, the largest player in North America, appears to be more exposed to Mexico-based manufacturing than its competitors, with over half of its truck production potentially tied to the region.

In contrast, U.S. truck manufacturers with low exposure to Mexico and imports more broadly, such as PACCAR and Volvo, could stand to benefit. “They would likely get to push pricing and take market share, while capturing some degree of margin. It would be a pretty good environment for them based on how their manufacturing footprint is currently set up,” Prudhomme said.

The elevator market may also present opportunities for gains and losses. Kone, a European brand, stands out as the only major player with substantial manufacturing operations in Mexico, which could leave them vulnerable in a tariff-heavy environment.

Getting Ahead of Trump Tariffs

Prudhomme acknowledged that nearly half of the industrials companies he covers either have plans to or have already increased their manufacturing capacity in Mexico. “There has been a lot of talk about this theme of ‘reshoring.’ Most of that has actually not been to the U.S. within my coverage, but rather to Mexico from Asia, in response to the last round of tariffs issued on China and the fallout from COVID related logistics issues,” he explained. 

Rather than acting hastily, some companies are taking a wait-and-see approach to gauge how the economic policies evolve in January. Others are proactively strengthening their supply chains. “Some are discussing strategies like holding more inventory and making their supply chains more resilient. This could mean finding two suppliers for a given part or enabling their facilities to produce items that they previously only produced in one region,” Prudhomme added. 

The M Science Difference

As the Industrial sector responds to new policies, how will M Science monitor company performance?

Prudhomme emphasizes our robust visibility. “We utilize import/export data from Mexico, which can help us answer key questions. We have the ability, with our data being so granular, to provide real time analysis of what’s happening,” he said. “If the tariffs are put in place, we’re going to be able to track the result. If there are tariffs placed on other countries, and businesses rely on Mexico more significantly, we can view that behavior, too.” 

M Science’s global perspective will also provide valuable context over the next four years. “Our data is going to be really helpful in answering a lot of these geo-political economic questions, with our ability to see shipments down to the category- and company-level,” he stated. M Science monitors Mexico-based import and export shipments by company and product line, delivering visibility into production trends across more than 50 public and private companies. 

Prudhomme and his team cover 20 companies in the Industrials sector, with a focus on the Building Products and Heavy Machinery subsectors. Their coverage includes: Ashtead Group PLC (AHT.LN) Allegion PLC (ALLE), Acuity Brands Inc (AYI), Carrier Global Corp (CARR), Caterpillar Inc. (CAT), Cummins Inc. (CMI), Deere & Co. (DE), Daimler Truck Holding AG (DTG.GR), ESAB Corp. (ESAB), Illinois Tool Works Inc. (ITW), Lincoln Electric Holdings Inc.(LECO), Middleby Corp. (MIDD), PACCAR Inc. (PCAR), Rockwell Automation Inc. (ROK), Stanley Black & Decker Inc. (SWK), Trane Technologies PLC (TT), United Rentals, Inc. (URI), Volvo ADR (VOLVB.SS), Vertiv Holdings Co. (VRT), and Whirlpool Corporation (WHR). 

In addition to company-specific research, the team produces monthly industry reports:

  • Rust Report: Details used equipment inventory and pricing trends across North America and Europe. It focuses on access equipment, agriculture equipment, construction equipment, and commercial vehicle markets.
  • Rental Equipment Report: Offers supplemental insights into AHT.LN and URI, providing visibility into key performance metrics such as rental rates, digital reservations, used equipment listings, valuations, and hiring trends.
  • Trucking Equipment Report: Delivers insights into truck equipment manufacturers, highlighting production, retail sales, used equipment trends, hiring indicators, and transport fundamentals across key markets. This report provides specific visibility into companies like CMI, DTG.GR, PCAR, VOLVB.SS, and others.
  • Global Tractor Registrations Report: Tracks tractor production and registration trends across North America, Europe, and APAC.


For enhanced visibility, we offer the following dashboards:

  • Heavy Machinery Used Equipment Dashboard: Provides data on used equipment inventory rates segmented by geographic region, industry, category, product, and ticker.
  • Rental Equipment Dashboard: Offers insights into major North American equipment rental companies, including analyses of rental rates, digital reservations, company performance, and branch locations for URI, AHT.LN, and HRI.
  • Industrial Job Listings Dashboard: Tracks job listings trends, offering insights into hiring activity at both the company and sector levels.
  • Industrial Shipment Dashboard: Monitors import and export activity, delivering valuable data on production and sales trends for over 50 manufacturing companies in key industrial end markets.

For more information or to connect with Alex Prudhomme:

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