CHICAGO (Reuters) - Caterpillar Inc's CAT.N earnings on Wednesday missed Wall Street's estimates, hurt by a combination of weak sales in China and higher production and restructuring costs, sending its shares lower.

The heavy equipment maker said its full-year earnings are expected to be at the lower end of its earlier forecast.

The Deerfield, Illinois-based company, a proxy for global economic activity, benefited in the past year from the strongest global growth since 2010. However, a tariff war between the United States and trade partners including China has sapped business confidence, dampening economic activity.

The International Monetary Fund on Tuesday lowered its forecast for global growth this year and next, its fourth downgrade since October.

Caterpillar said while some of its customers are turning more circumspect in making large capital expenditures, overall demand remains positive.

“We continue to expect modest sales growth for the year,” Chief Executive Officer Jim Umpleby told analysts on an earnings call.

The sales outlook is driven mainly by an expected ramp-up in demand for mining machines and solar turbines.

In a worry for the company, sales of construction machines in China declined, dragged down by slowing economic activity and competitive pricing.

The world’s second-largest economy accounts for up to 15% of Caterpillar’s construction equipment sales. It is facing competition from local Chinese players trying to chip away at its market share through aggressive pricing.

FILE PHOTO: Caterpillar logo is pictured at the 'Bauma' Trade Fair for Construction Machinery, Building Material Machines, Mining Machines, Construction Vehicles and Construction Equipment in Munich, Germany, April 8, 2019. REUTERS/Michaela Rehle

The company said it was looking to counter the competition with new products rather than price cuts.

Profit in the June quarter suffered because of $110 million in restructuring costs, as well as a $328 million increase in manufacturing costs due to higher raw material prices, including a $70 million tariff bill.

Caterpillar still expects the tariffs to cost the company between $250 million and $350 million this year. But it said input prices are moderating and freight costs have stabilized.

Restructuring costs are also projected to be significantly lower in the second half of the year.

Some analysts have warned that more than half of Caterpillar’s end markets have already peaked or will peak this year, which could translate into lower earnings next year.

The world’s largest heavy-duty equipment maker experienced the longest downturn in its history when sales dropped more than 40% between 2012 and 2016.

Chastised by the sales slump, the company has been spending money on expanding its services and parts business, which has higher margins and is less cyclical. It is aiming to increase services revenue to $28 billion by 2026, up from $18 billion in 2018 and double what it was in 2016.

In the second quarter, Caterpillar reported net income of $1.62 billion, or $2.83 per share, compared with $1.71 billion, or $2.82 per share, a year ago. Analysts surveyed by Refinitiv, on average, expected earnings of $3.11 per share.

The company retained its 2019 earnings outlook of $12.06-$13.06 per share, but said profit is expected be at the lower end of the forecast.

Its shares were down 4.5% at $131.95 on Wednesday afternoon, weighing on the Dow Jones Industrial Average .DJI.