After months of bracing for tariffs, contractors now find themselves building through the latest escalation in a trade war.
The Trump administration officially enacted a 25% tariff on imports from Mexico and Canada Tuesday, along with an additional 10% tariff on Chinese goods. The tariffs on Mexico and Canada were initially set to take effect in February but were ultimately postponed for a month.
The construction industry has been bracing for the impact for months. That’s why much of the tariff-driven price movement has likely played out by now, even ahead of the effective date, said Michael Guckes, chief economist at ConstructConnect.
“The impact of tariffs has already been built into the prices we are seeing today, thus we shouldn’t expect drastically higher prices moving forward,” said Guckes. “We are recommending to our clients that they take a measured and calm response to near-term events.”
Construction input prices jumped 1.4% to kick off the year in January as contractors rushed to buy materials before tariffs went into effect, according to an analysis by Associated Builders and Contractors. That marked the largest monthly increase in two years.
In other words, just the anticipation of tariffs had already been driving up prices on key materials, even before Tuesday’s deadline.
Pressure on project budgets
Higher tariffs will further squeeze project budgets by increasing costs on a range of imports, including raw materials such as iron, aluminum and cement, as well as finishing products such as tiles and mirrors, according to ABC.
That uncertainty could lead to project delays, cancellations and budget overruns, according to a recent report from Morningstar. Projects already in the planning phase may require revisions, while those under construction face increased risks of material shortages and cost escalation.
However, for projects with fixed-price or guaranteed maximum price contracts, contractors may be unable to pass along tariff-related increases from the past several months, leading to potential financial losses. Some firms may attempt to manage the disruption by resequencing construction activities, but that could still cause delays, according to Morningstar.
At the same time, contractors are likely to adjust how they price future projects. Those in the procurement phase may expand contingency budgets, incorporate price escalation clauses or avoid strict fixed-price contracts, according to the report.
That uncertainty could put downward pressure on construction spending until there is more clarity on domestic trade policies, according to ABC.
Nevertheless, Guckes cautions against overreacting to short-term price fluctuations, especially since much of the pricing impact may have already been felt.
“Brief periods of acute volatility are not good times to make long-run or brash decisions which might be regretted soon afterwards,” said Guckes. “When one considers how much steel prices have already moved in conjunction with this event it is hard to believe that prices will both move significantly higher from here and stay elevated for a prolonged period of time.”
