In Summary
- Tariffs, including a new 25% duty on all steel and aluminum imports and significant tariffs on China, are expected to drastically increase the cost of essential construction materials like wood (70% from Canada) and lime/gypsum (71% from Mexico), leading to higher project costs and potential supply chain delays.
- Construction companies must immediately take steps to reduce risk by implementing careful contract bidding with price contingencies, engaging in proactive supplier management and advance procurement, and actively investigating alternative, non-tarified supply chains and substitute materials to stabilize operations and finances.
─────────────────────────────────────────────────────────────────
The recently announced tariffs impacting imports from China, Canada, and Mexico are expected to impact the construction industry. These three countries are the nation’s largest trading partners with 15.8% of total trade coming from Mexico, 14.3% from Canada, and 10.9% from China. Earlier this month, President Trump called for tariffs on certain Canadian and Mexican products but agreed to a 30 day delay due to concessions. However, there was no delay on the 10% tariff on all Chinese products. The situation became more complicated when a new 25% tariff on all aluminum and steel imports was announced. The cumulative impact of these policies could spell a sharp increase in the cost of essential construction materials. Proactive planning taken now to navigate these changes can help to reduce the potential impact. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
Summary of Tariff Activity
- Steel and Aluminum Tariffs — A 25% tariff on all steel and aluminum imports is set to take effect in March, reversing previous exemptions for key allies. These tariffs are expected to increase costs of raw materials, finished products, and construction equipment. Foreign officials signaled that they may respond with tariffs on U.S. agricultural machinery, processed foods, and other farm-related exports.
- China — A 10% tariff on all Chinese imports took effect on February 10, 2025, covering electronics, machinery, and other materials used in agricultural equipment. China responded with 15% tariffs on U.S. coal and liquefied natural gas, as well as 10% tariffs on crude oil, agricultural machinery, and vehicles.
- Canada and Mexico — The U.S. announced 25% tariffs on all imports from Canada and Mexico, along with a 10% duty on Canadian energy products such as crude oil and natural gas. These measures have been delayed for 30 days, but both countries have indicated they will retaliate if the tariffs take effect.
Impact on Construction Companies
- Supply Chain Disruptions – The tariffs have the potential to disrupt supply chains resulting in delays to essential building materials and equipment. Delays in locating alternate sources of wood, gypsum, steel, and aluminum, will not only impact project timelines but may also lead to shortages of certain materials making them more expensive.
- Increased Material Costs – Construction projects rely on several raw materials necessary in the building process. Materials such as wood, steel, aluminum, and copper are imperative and are typically sourced from across the globe. The new tariffs will drive up the costs of these items resulting in an unexpected increase in total project expenses. Although some increases can be passed on to customers, others will be absorbed by the contractor, depending on the type of work agreement.
- Financing Challenges — Trade uncertainty may prompt lenders to tighten credit terms for construction loans. Higher input costs and unstable prices could lead to stricter requirements for operating capital putting industry companies in new and challenging situations when seeking new sources of capital.
Steps to Take Now
There are several proactive steps management should consider taking now, including:- Careful Bidding – Contractors should carefully bid projects to build in protections from the price increases expected to occur when the tariffs go into effect. Consider adding qualifications regarding material costs such as time limits and contingencies added to account for others price increases.
- Proactive Supplier Management – Strong relationships with key suppliers will make it easier to deal with potential increases. Maintain open communication to stay aware of coming changes, open the door to price protection discussions, and to capture early pay or volume purchasing discounts.
- Alternative Material Usage – Consider avoiding the use of aluminum and steel products as much as possible to insulate against price fluctuations. When possible, identify composite or other materials that are suitable replacements.
- Advance Procurement – Many companies have placed large orders to build a stockpile of the most used raw materials and supplies expected to be impacted. While this is not a long-term solution, it does provide temporary relief against tariff driven price fluctuations. It will also create a window of time for management to find other viable solutions. NOTE: For construction contractors issuing GAAP basis financial statements there are implications in the reporting for uninstalled materials when calculation work in process on uncompleted jobs. Please contact Hanson & Co. CPAs if you have questions on how to incorporate uninstalled materials into your work in process calculations.
- Alternative Supply Chains – Now is the time to start investigating alternative suppliers, including domestic producers, to help mitigate risk. By establishing relationships prior to the start of tariffs companies will have other options to explore rather than simply being caught off guard.