The Impact of New Tariffs on Construction in 2025 and beyond

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In recent years, the global construction industry has faced significant challenges, from labor shortages to rising material costs. But perhaps one of the most significant threats to the construction sector is the imposition of new tariffs, which can impact everything from material costs to project timelines and ultimately, construction investment. As governments around the world implement new trade policies and tariffs, it’s crucial to understand how these changes will affect the construction industry.

What Are Tariffs?

Tariffs are taxes or duties placed on imported goods, and they serve as a tool for governments to regulate trade. In the context of construction, tariffs are most often applied to raw materials and finished products like steel, lumber, concrete, and glass. These materials are essential to construction projects, making the imposition of new tariffs a significant concern for contractors, developers, and investors.

The Context of Recent Tariff Changes

In the past few years, trade tensions between major economic powers such as the United States, China, and the European Union have led to the introduction of tariffs on a wide range of goods. In particular, steel and aluminum tariffs have gained attention, as these materials are fundamental to building infrastructure. The U.S. government, for example, imposed tariffs on steel and aluminum imports, arguing that it would protect domestic industries and boost local production. However, critics argue that these tariffs have had unintended consequences on industries such as construction, which rely heavily on imported materials.

More recently, as nations worldwide grapple with inflation and the fallout from the COVID-19 pandemic, tariffs on construction materials have been adjusted in an attempt to address domestic needs while protecting local manufacturing. However, the complexity of international trade and the interconnected nature of global supply chains mean that the effects of these tariffs are often not straightforward.

The 1930 Smoot-Hawley Tarrifs were less than successful and you can read the details of this tariff act as instituted by congress HERE.

Impact on Construction Investment

Increased Project Costs

One of the immediate effects of new tariffs is the increase in the cost of construction materials. Steel, lumber, and other essential components are subject to price hikes when tariffs are implemented, which directly affects construction costs. For large-scale projects such as commercial buildings, bridges, and infrastructure, these cost increases can be significant. As the price of materials rises, contractors face the difficult decision of either absorbing the additional cost or passing it on to clients. In either case, the financial burden can discourage new investment in construction projects.

For instance, the U.S. steel tariff imposed in 2018 saw a rise in the price of steel by as much as 30%. These price increases were often transferred to construction projects, affecting both private and public-sector construction. According to the Associated General Contractors of America, steel prices increased by about 20% in 2021, resulting in budget overruns for many projects, particularly those in the residential and commercial sectors (Source: AGC).

Delayed Project Timelines

Higher material costs can lead to delays in project timelines. When construction companies face price increases due to tariffs, they may be forced to delay procurement of materials until prices stabilize or negotiate for better terms with suppliers. Additionally, construction supply lines, already strained due to global disruptions in shipping and logistics (especially due to the COVID-19 pandemic), face further bottlenecks as the tariffs disrupt the flow of goods across borders. With higher prices and longer delivery times, project timelines can be extended, making it even harder to keep construction schedules on track.

Risk to Construction Financing

The uncertainty around material costs, coupled with the risk of unexpected tariff increases, can make it difficult for developers to secure financing for new projects. Investors are often hesitant to commit to large-scale construction projects when material costs are volatile, and construction timelines are uncertain. In the worst-case scenario, ongoing projects could face cost overruns or be forced to halt until funds can be secured to account for higher material costs.

According to a National Association of Home Builders (NAHB) report, the rise in the cost of building materials has led to a 15% increase in the price of single-family homes in the U.S., making homeownership less affordable and diminishing returns for investors (Source: NAHB).

Impact on Construction Supply Chains

Strained International Supply Chains

The global nature of modern construction means that most industries are reliant on complex supply chains. Raw materials for construction, including timber, cement, and steel, are often sourced from countries far beyond national borders. With tariffs, companies may find themselves facing disruptions that not only drive up costs but also create uncertainty in the supply of goods. For example, the imposition of tariffs on Canadian softwood lumber by the U.S. has created price volatility for residential builders across North America, as they rely on this import to meet housing demand.

Disruptions in the supply chain can also have a cascading effect. A delay in one material can cause delays in an entire construction project, affecting subcontractors, workers, and the broader economy. As materials become harder to obtain, construction firms may need to find alternative suppliers or substitute materials, both of which can incur additional costs and time delays.

Local Sourcing: A Potential Solution?

In response to these challenges, some construction companies are beginning to explore local sourcing options to reduce their exposure to international tariffs. By sourcing materials domestically or regionally, firms can bypass the uncertainty of global supply chains and reduce costs associated with tariffs. However, this strategy is not without its challenges. Local suppliers may not always be able to meet the high demand for specific materials, and sourcing locally may not be a feasible solution for every project. Moreover, relying solely on local suppliers can drive up costs if domestic production is more expensive than imports.

Some analysts suggest that more advanced technologies, such as 3D printing and modular construction, could help alleviate some of the pressure on supply chains by reducing reliance on traditional materials. However, these technologies are still in their early stages of adoption and may not yet be viable for large-scale construction projects.

Labor Shortages and Supply Chain Bottlenecks

Tariffs not only affect the availability of materials but also exacerbate labor shortages. With ongoing supply chain disruptions, construction companies are already grappling with a shortage of skilled labor. The tariff-induced increases in materials costs can further strain budgets, leaving companies with less money to hire the labor force they need. Additionally, the rising cost of living, combined with uncertainty around future tariffs, has made it harder for construction companies to retain workers, particularly in regions where the labor market is already tight.

Conclusion: A Complex Challenge for the Construction Industry

While tariffs on construction materials are designed to protect domestic industries and reduce reliance on foreign imports, their impact on the construction sector is undeniable. Increased material costs, delayed projects, and a strained supply chain all contribute to rising expenses for construction firms. In turn, this affects both the pace and scale of investment in construction projects. For developers and contractors, navigating the new tariff landscape will require flexibility, foresight, and an ability to innovate in order to minimize the effects on their bottom lines.

The construction industry must look to a combination of strategies, including sourcing locally, improving efficiency through new technologies, and collaborating with suppliers to ensure that projects remain financially viable. Government policies aimed at addressing tariff impacts on construction will also play a significant role in shaping the future of the industry.

Bibliography

Associated General Contractors of America (AGC). “Impact of Steel Tariffs on Construction.” AGC. Link
National Association of Home Builders (NAHB). “Rising Material Costs Impacting New Home Prices.” NAHB. Link
US Trade Representative. “U.S. Tariffs on Steel and Aluminum: An Overview.” Link
Construction Dive. “Why Tariffs Are So Costly for the Construction Industry.” Link

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