Various new, pending, or proposed tariffs announced by the Trump administration are likely to have significant impacts on the construction industry. China, Mexico, and Canada are some of the largest sources of imported construction materials for the U.S., including steel, concrete, lumber, gypsum (used for drywall), asphalt binder (used in roads), switchgear, and much more. Steel and aluminum, currently slated for their own 25% tariff, are found in some form in nearly every construction project. 

Tariffs will lead to some uncertainty: Increased material costs will drive up the overall cost of construction, there could be material shortages and project disruptions, projects could be put on hold, and overall demand for construction could decrease. Sectors like commercial building, bridges, and residential homes could be especially impacted; data center work and manufacturing facilities may be more insulated because of sheer demand.

Contractors need to be prepared. Consider the following: 

• Research and identify construction material impacted by tariffs, and assess potential impacts to your current and future projects. 
• Review contracts and incorporate price escalation, changes in law, and force majeure clauses; consult your construction attorney. Tariffs that stay in place are likely to be felt quickly. For contracts that are already signed or in-process without  yet factoring in the cost of these new tariffs, the increase will most likely be absorbed by the contractor, which will impact margins since the recovery of the additional costs is unlikely; but for future projects, contractors should review terms to incorporate these clauses.
• Review your upcoming purchase orders’ terms and conditions. 
• Proactively communicate with clients about potential cost increases. 
• Build a contingency into budgets to cover tariff-related cost increases. 
• Diversify your suppliers, given potential shortages. 
• Consider stockpiling certain materials. 
• Consider the indirect costs that will be impacted by tariffs, such as the costs of gas/diesel, equipment, or vehicles.

To safeguard their operations, construction contractors need to stay informed with the evolving landscape on the administration’s actions. Be sure to monitor the news and industry insights over the coming months, and make sure you’re subscribed to receive CohnReznick updates.