On April 2, 2025, President Donald Trump continued to expand his tariff program on imported goods by announcing a baseline 10% tariff, with higher reciprocal levies on goods from Europe, Japan, China, and other nations. The new tariff is on top of those that have already been enacted on inbound steel and aluminum and those that have gone into effect on foreign-made vehicles and auto parts.
While we have explored how tariffs could impact the construction industry, there is cause to revisit this topic as the tariffs are now broader and will drive the costs of construction materials, equipment, and tools up. This is yet another challenge for builders and developers across the United States to grapple with.
Higher Material Costs
The immediate impact of the tariffs has been the increase in costs for essential construction materials. Steel and aluminum, critical for various construction applications, have seen price hikes. This affects everything from structural steel used in buildings to rebar and ductwork. The increased costs are felt across the industry, making it more expensive to undertake construction projects. An expanded tariff program will only increase and complicate the cost of building.
Budget Strains
Rising material costs have strained budgets for many construction projects. For agencies funded by state and/or local budgets, unforeseen costs are challenging and have no quick solution. While there are some supplemental programs in place to help budgets, for instance, congestion pricing in New York City will supplement the MTA’s capital program, most agencies will find themselves with the difficult choice of either accepting that building is going to be more expensive or exploring delaying or scaling back projects.
Price Volatility
The tariffs have introduced a level of price volatility for construction materials. This volatility makes it difficult for builders to accurately predict costs and plan budgets. For an industry that relies heavily on estimates, uncertainty of this nature can lead to higher bids and more conservative project planning, impacting the overall efficiency and cost-effectiveness of construction projects.
Impact on Housing
One of our bigger needs across the country is affordable housing for our changing demographics. And residential construction is not immune to the effects of the tariffs. Residential contractors and home builders are bracing for cost hikes on lumber, insulation, drywall, and other products. These increased costs will continue to drive up the price of homes, with some markets still seeing sales at all-time highs. This will make it more difficult for people to afford new homes or potentially lead to reduced housing starts and slower growth in the sector.
Strategies the Construction Industry Should Consider
While we are focused on the immediate negative impact tariffs may bring, there are several strategies that savvy construction companies can adopt to mitigate the impact of increased costs due to tariffs.
Optimize Material Procurement
Some strategies we saw the industry implement during the supply chain issues from a few years back would be viable to implement or enhance. Bulk purchasing, exploring alternative suppliers, purchasing fewer finished goods and more raw materials to assemble parts in-house can all help control costs. Another technique to consider is the implementation of just-in-time delivery, whereby the contractor coordinates with their suppliers to deliver construction materials when needed, minimizing on-site storage needs and reducing waste.
Enhance Inventory Management
While not ideal, it is not unusual for contractors to see unused inventory “walk off” the job. To curb this, contractors should invest in inventory management software to help track material usage, monitor stock levels, and generate accurate forecasts of what is leftover versus needed and what can be carried over to the next job. Further, contractors can revisit lean construction principles, which focus heavily on streamlined material procurement and inventory management, to reduce waste and improve efficiency.
Financial Management Best Practices
In any economic climate, the tried-and-true construction financial management tools, cash flow forecasts and project budgets are the contractors’ best friends. These reports will help management identify the peaks and valleys of cash flow, by project and companywide and identify potential financial issues to proactively plan for rather than remediate at the moment.
These reports will help the construction industry negotiate favorable contract terms, help optimize resource utilization, while helping press for timely payments and maintain adequate liquidity to meet financial obligations.
Contractual Strategies
While some seem like best practices to revisit or even implement, the first place to look is within the contract language. Escalation clauses in contracts allow for adjustments in pricing based on marketplace fluctuations. However, one must also keep in mind that any similar contract language may have to be in place with their subcontractors.
In Closing
There’s still much to uncover about the impacts of the existing and newly expanded tariffs. The stock market has already responded, and construction project owners will likely follow suit. Yet, at the end of the day, their priority remains clear: owners want to build, the public wants the owners to build, and the contractors want to build.
We need housing, and we must invest in our infrastructure. The construction industry, known for its resilience, will adapt, deliver, and continue to thrive.
