Impact of New Tariffs on the Construction Industry

Policy changes introduced by the Trump administration stand to have a major impact on the construction industry. Tariffs of 25% on steel and aluminum imports are designed to encourage domestic production of key materials and reduce the domestic economy’s dependency on foreign providers.

While it will take time for these tariffs to have their intended impact in terms of spurring domestic production, they will have the immediate effect of reshaping the industry landscape. In the short term, tariffs will radically change material costs, supply chains, and procurement strategies, affect market demand, and reshape the dynamics of competition in the construction industry. In analyzing the likely impact of these policies, we can outline the disruptions we anticipate will shake up the industry and offer strategies for overcoming challenges as they arise.

Higher Material Costs

Essential materials will likely get substantially more expensive, further compressing profit margins. As mentioned, steel and aluminum have been subject to 25% tariffs when the policy changes went into effect on March 12, 2025. The nature of the tariffs, as they stand, apply universally, regardless of the source of the imported material. However, the stated target of the tariffs is China, which the administration accuses of undercutting the competition by subsidizing the export of Chinese metals. Currently, most U.S. steel imports are sourced from Canada, Brazil, and Mexico. Speaking of Canada and Mexico, we’ve already seen announced tariff timelines changing, following calls with leaders of those countries. It’s possible we’ll see similar delays in the implementation of future tariffs. That’s worth keeping in mind as a possibility, but conventional wisdom suggests that, while the timing may be hard to predict, these tariffs are coming.

Construction business owners facing tariff-related uncertainty can prepare by minimizing the impact of more expensive materials. That means:

1. reassessing project budgets, with the aim of absorbing additional costs without compromising timelines or quality (unless the contract has material price escalation features. If so, discuss the increase in material prices with the owners and increase future invoices for those price escalations according to the verbally discussed changes);
2. negotiating with clients to adjust project scope and budgets;
3. conducting budgeting and forecasting analyses to predict and manage the impact of these tariffs; and
4. for future contracts, ensuring the contract includes material price escalation features.

Reworking Supply Chains

In a high-tariff environment, domestic producers have a natural advantage as imported goods become more costly and less available. It will take time for the U.S. domestic market to meet the market’s demand for tens of millions of tons of steel and aluminum per year. In the meantime, expect project timelines to be revised and companies to scramble for alternative suppliers. Companies that can quickly source these materials domestically will enjoy a more competitive posture through the transition period.

Of course, contract negotiations raise their own complications. Construction companies should enter new business arrangements on favorable terms by designing contracts that protect their interests. To do so, consider:

1. securing long-term contracts that lock in price and make material acquisition more predictable;
2. sourcing from a diverse supplier base to mitigate the impact of future disruptions;
3. including material price escalation and fixed-price features in contracts;
4. vetting new suppliers to ensure their materials meet your quality standards; and
5. auditing supply chains to identify cost-saving opportunities.

Invest in Efficiency

Cost efficiency can be unlocked on site, in the back office, and everywhere in between. Focusing on improving the value of each dollar can help mitigate the impact of higher material costs. Furthermore, the time and effort spent revising budgets and project scopes can potentially assist with future projects, helping them run more smoothly and economically. Operational audits can provide actionable insights that translate into improved financial performance by identifying inefficiencies.

As tariffs take effect, they will likely drive a shift in market demand. Carefully analyzing these evolving trends will help construction firms identify which projects are being delayed or cancelled, which sectors are particularly sensitive to these new costs, and the overall impact on revenue streams and backlogs. Utilizing this information can help to guide overall business strategy. Most operations with sophisticated accounting and ERP software are already tracking the data necessary to identify these trends and may be able to acquire the analysis they need by utilizing existing human resources or investing in broadly available AI-powered data analysis solutions.

Compliance

With regulations changing quickly, construction companies must have policies in place to ensure they’re not subject to potential fines and penalties. These policies should be developed and tested well in advance of new rules taking effect, relying on qualified legal expertise to ensure they’re effective. Proactive compliance helps construction firms stay on task, rather than having to deal with the disruption caused by regulatory scrutiny or legal action.

Strategic Planning

To adapt to changing circumstances, construction firms should be forward thinking. With respect to upcoming tariffs, that means carefully controlling costs and rethinking supply chains as initial steps. The broader economic impact of tariffs might inspire additional actions, for example, a shift in the types of projects pursued or materials used. Preparing for what’s ahead will help businesses navigate the challenges that arise, expected and unexpected.

Construction has long been viewed as an industry resistant to change. If technological advancement wasn’t enough to encourage many to adopt new ways of operating, the economic impact of tariffs could make the choice even more stark. Companies unprepared or unwilling to embrace change in 2025 may not join us in 2026. Bolster your business’ strategic capability by building relationships with knowledgeable industry advisors you trust.

Conclusion

For those willing and able to adapt, new tariff policies may disrupt but not derail business-as-usual. By predicting their impact and preparing accordingly, businesses can minimize the damages and capitalize on opportunities as they arise. Refining practices to mitigate the impact of material costs, rethinking supply chains from the ground up, improving operational and cost efficiency, avoiding regulatory pitfalls, and refreshing business strategy to meet the moment will all be essential to overcome the growing pains ahead. Luckily, these are smart strategies in any market environment. That means the challenges you face head on today will prove the adaptability and resilience of your business and give you greater confidence in your future.