On April 2, 2025, President Trump signed an executive order establishing a “Reciprocal Tariffs” policy. The policy introduced a 10% baseline tariff on all imports, followed by higher “reciprocal” tariffs on 180 select trading partners, including 34% on Chinese imports and 20% on European Union imports.
Since then, global trade has experienced a ripple effect, leading to volatility in the U.S. stock market. So far, over 75 countries have contacted the administration for discussions as the situation continues to evolve. In the construction sector, where key materials like steel, aluminum, lumber, and copper were already subject to a 25% tariff imposed in mid-March, these new measures have intensified concerns about supply chain disruptions, inflated costs, and project dynamics.
On April 8, 2025, Grassi hosted a webinar titled “Navigating the New Tariff Landscape: Solutions for the Construction Industry.” The discussion featured a diverse group of experts: Carl Oliveri, Construction Practice Leader, Ronald Eagar, Chief Operating Officer, both partners at Grassi; Michelle A. Schaap, Chair of Tech, Privacy, and Data Information from the law firm of Chiesa Shahinian & Giantomasi; and Christopher Hillman, Surety Underwriting Manager at Philadelphia Insurance Companies. Together, they examined the industry’s challenges and strategies contractors can use to chart a path forward.
Current Trends in Construction and Real Estate Across New York and New Jersey
In early 2025, the construction industry was marked with optimism, especially in New York City, where large capital programs and major projects like the Gateway Program, Second Avenue Subway Expansion, Port Authority Bus Terminal the Interborough Express, and Penn Station Upgrades generated excitement about significant publicly funded initiatives. Projects like 270 Park Avenue, New York City’s largest all-electric tower, spurred a resurgence in corporate office renovations. Meanwhile, the city’s construction spending in 2024 closed at $68.8 billion, coupled with forecasts for 2025 and 2026, which would bring the three-year outlook to an impressive $198.4 billion.
Despite some promising initiatives on the horizon, challenges still exist, and the future remains uncertain. Interest rates are still high, the need for incoming skilled labor is still prevalent, and congestion pricing uncertainties could impact the MTA’s capital budget plan (leaving about $500 million of funding in limbo). Additionally, many construction firms remain challenged, already dealing with shrinking backlogs and a tight labor market.
What Happened on April 2?
Last week, President Donald Trump levied tariffs affecting 180 countries, including:
- A baseline tariff of 10% will apply to all U.S. trading partners.
- Additional reciprocal tariffs vary by region, including a 34% reciprocal tariff on China and a 20% reciprocal tariff on the European Union.
While key construction materials such as steel, aluminum, lumber, and copper are exempt from these reciprocal tariffs, they remain subject to the 25% Section 232 Goods tariff, which took effect on March 12. Enacted to bolster domestic production, these measures have intensified inflationary pressures, disrupted supply chains, and compressed margins, particularly for smaller and mid-sized contractors.
What Have Been Some Immediate Reactions to the Tariffs?
The expanded tariffs have triggered volatility in financial markets and widespread concerns that rising costs could stifle construction activity across the board. However, the administration has implied that the increased tariffs could be a “short game,” with more negotiations anticipated through April, May, and possibly June.
Construction firms are responding with strategic caution. Many are stockpiling materials to lock in current prices, which has increased the already high demand for warehouse space. This strategy is further complicated by vendors and subcontractors who are reluctant to commit to pricing as they wait for the situation to unfold. The prevailing approach centers on proactive risk management, with companies exploring alternatives like domestic sourcing, alternative international sourcing, and material substitutions to mitigate the impact.
How Does the Current Tariff Situation Differ from Past Supply Chain Issues?
The current tariff situation shares similarities with the supply chain disruptions of the COVID-19 pandemic—only with new layers of complexity. Some experts view it as a “repeat performance,” with a call to apply lessons learned. “Learn about looking forward toward stockpiling and bulk purchases, and better inventory management practices such as potentially pre-purchasing, controlling and storing inventory domestically,” advised Grassi’s Ron Eagar.
The tariff expansion compounds existing strains on a supply chain that has not fully recovered to pre-pandemic efficiency levels, squeezing project budgets already stretched thin by delays and inflation. The geographic variations in construction activity remain significant, with regions like Florida, Texas, and the Carolinas maintaining relatively steady growth post-2020 compared to more volatile markets elsewhere. From a contractual perspective, tariffs may qualify as a government action, potentially triggering force majeure clauses that could entitle contractors to change orders.
Perspectives to Consider When Analyzing Tariff Impacts
How you are affected by these tariffs depends significantly on whether you function as an owner, contractor, or subcontractor and on the structure of your contract—be it cost-plus, lump sum, or cost-plus with a guaranteed maximum price (GMP).
For owners with signed lump sum contracts, proceed cautiously when considering seemingly locked-in prices. “If you are an owner and you’ve got a signed lump sum contract right now, you may be feeling like you’re in a really good position because you’ve locked in this price. However, Owners, I would suggest dusting off your contracts and looking at the change order and force majeure triggers,” noted Michelle Schaap.
For new agreements, contractors must ensure provisions for price escalations to protect against rising costs while also considering how contractual flow-down provisions affect subcontractor relationships.
Strategies To Prepare Your Organization for Tariff Challenges
Establish an Open Dialogue with All Involved Parties
Preparing for change starts with shifting the culture. Contractors should engage in open discussions with project owners, fellow contractors, and vendors to address issues promptly. Encouraging a collaborative approach can help everyone reach reasonable solutions since all parties are experiencing similar economic pressures and can work together. Additionally, proper documentation is essential; recording all agreements protects everyone involved in case disputes arise later.
Review Contracts for Vulnerabilities
Re-evaluate existing contracts on a project-by-project basis to identify potential tariff impacts and prepare for cost increases. Pay special attention to change order triggers, force majeure provisions, and price escalation clauses. For new contracts, negotiate terms that address material substitutions, pricing adjustments, and extended lead times. Specific to lead times and product delivery delays, do not underestimate the potential effects of liquidating damages (LDs). Consider including specific language regarding tariff impacts and ensure that “flow-down” provisions are consistent between prime contracts and subcontractor agreements. This will help avoid discrepancies and protect against unfavorable terms.
Create Clarity with Financial Management
Contractors should always utilize the tried and true construction financial management tools. Still, in uncertain times, they should implement rigorous cash flow forecasting and detailed project and operational budgets to identify potential issues proactively. Grassi’s Carl Oliveri emphasized that “Cash is culture”— “not just king.” This highlights the importance of ensuring that cash flow awareness extends throughout the organization, from leadership to field operations. Increasing the frequency of meetings between project, finance, and accounting teams can help detect issues early, potentially saving costs in the long run.
Lock In Pricing and Reduce Exposure with Material Procurement Strategies
As previously discussed, material-intensive contractors should consider stockpiling to secure current pricing. You can store materials on-site or use alternative storage solutions, such as self-storage. On-site storage may enable contractors to bill material costs in advance, improving cash flow. Another technique to explore is implementing just-in-time delivery by scheduling material deliveries as needed and diversifying domestic and international suppliers to reduce dependency on any single source.
Consider Alternative Material Solutions
Consider material substitutions by offering alternative products to owners or even producing some materials in-house when feasible. For certain materials, forward contracts or hedging can help lock in prices and reduce the risk of sudden cost increases. This tactic proved effective for plumbers and electricians during past copper price spikes. Reassess general conditions in existing contracts, particularly lump sum monthly payments that may not account for tariff-related cost increases.
Adapt to Changing Credit Strategies
Surety providers note that while COVID-19 didn’t harden the market as much as anticipated, this new tariff situation could push credit providers “off the fence” toward more conservative positions. To mitigate this, strengthen your pre-qualification processes for subcontractors and vendors to ensure they meet these requirements.
Consider whether payment and performance bonds might be appropriate for projects that weren’t previously required. Remember to maintain proactive communication with sureties, banks, and other credit partners to ensure they understand your business plan and your approaches to risk.
Will Construction Costs Stabilize or Remain Elevated?
Construction costs are likely to remain elevated for the foreseeable future. Construction material prices currently stand 41% higher than in February 2020, with little indication of significant relief on the horizon. Some price increases may be opportunistic rather than directly linked to tariffs, as market participants capitalize on the uncertainty. The situation requires stakeholders to plan for sustained cost increases and emphasize communication, proactivity, and creativity to manage these costs and find solutions.
Tariffs Are Fluid
Oliveri caveated the conversation by stating that the situation is ever-changing and fluid. True to those words, on April 9, 2025, President Trump announced a 90-day tariff pause for all countries, excluding China, where the tariff increased to 125%. While this is a positive development for our economy, we have observed how quickly the administration’s position can change. A savvy contractor should use this time to prepare and insulate themselves for the inevitable uncertainty that lies ahead.
Resilience and Adaptability
The construction industry may face a challenging road ahead with the new tariffs, but its resilience and adaptability can pave the way for success. Stakeholders can navigate this uncertain landscape by applying lessons from past disruptions, prioritizing communication, and leveraging strategic financial, operational, and contractual practices.
As tariff policies evolve with ongoing negotiations and potential shifts in global trade dynamics, the industry must remain vigilant and collaborative to turn challenges into opportunities for growth. The call to action is clear: Contractors must proceed with caution but stay informed, focused, and ready to adapt.
Though there is still much to uncover about the impacts of the existing and newly expanded tariffs, the construction industry is resilient. Contractors should work with their financial professionals to forecast the impact of rising material costs, inflationary pressures, and supply chain disruptions to proactively identify where triage will be needed.
For personal advice on how these tariffs impact you or your business, please contact Carl Oliveri, Grassi’s Construction Practice Leader and Partner.
