Facing the Tariff Challenge in 2025

Tariff Pressures and Construction Industry Realities: Navigating Cost, Risk, and Strategic Response in 2025

As trade policies shift rapidly under President Trump’s administration, the construction industry navigates unprecedented economic terrain. With sweeping tariffs on essential materials like steel, aluminum, lumber, and even clean technologies, contractors and developers must reevaluate every aspect of their operations—from procurement to project execution.

The Scale and Scope of Tariffs Impacting Construction

The March 2025 reinstatement of 25% tariffs on steel and aluminum imports marked a decisive shift in U.S. trade policy. This followed escalating duties on Canadian softwood lumber, initially set at 14.5% and rising to a confirmed 34.45% in April 2025, surpassing earlier projections. These measures, under Section 232 of the Trade Expansion Act, aim to strengthen domestic industries but simultaneously raise costs for builders across the country.

The Biden-era exemptions no longer apply, and tariffs now include derivative goods such as steel fixtures, aluminum cladding, and pre-fabricated building modules. As of May 14, 2025, the U.S. and China agreed to suspend most tariffs for 90 days, cutting reciprocal rates from 125% to 10%, though 20% duties on fentanyl-related Chinese imports remain.

Cost Inflation and Financial Stress

These tariffs have driven a dramatic increase in input costs. Steel prices surged 16% in Q1 2025 alone, while framing lumber reached $454 per 1,000 board feet, driving overall home construction costs up by $7,500 to $10,000, according to the National Association of Home Builders. This inflationary pressure affects every phase of a construction project, from planning to completion, affecting both public and private developments. With the temporary tariff suspension, contractors may experience some short-term relief on material costs, but uncertainty remains.

Contractors face pressure between fixed-price contracts and rising material costs, especially those lacking escalation clauses. Public agencies constrained by municipal or federal budgets increasingly face unmanageable cost overruns, which threaten project viability and strain taxpayer-funded programs.

Supply Chain Disruption and Scheduling Volatility

Tariffs severely disrupt global supply chains by limiting access to affordable, foreign-sourced materials. Delays are being compounded by longer lead times from domestic suppliers who are now overburdened. These disruptions trigger a cascading effect on project timelines, labor costs, and productivity rates.

More than 12% of American projects report material delays, and over 50% face skilled labor shortages exacerbated by trade instability. According to the Fall 2024 Construction Labor Market Report, overall construction employment remains tight, with open positions near record highs and labor churn stabilizing at pre-pandemic levels. As companies reroute logistics and onboard new suppliers, they encounter inconsistent material quality and additional compliance hurdles. Nearly 65% of general contractors surveyed expect moderate to severe labor shortages to persist through 2025, further compounding schedule risks. While the 90-day tariff pause may slightly ease immediate supply concerns, its limited duration means long-term volatility remains a significant risk.

Industry-Specific Risk and the Role of Surety Bonds

Surety providers are closely monitoring how firms respond to tariff impacts. Those that demonstrate rigorous risk assessment, clear mitigation plans, and contractual clarity are better positioned to maintain bonding capacity. Early collaboration with sureties and brokers can ensure prequalification and safeguard project cash flow. Additionally, supply bonds and advance payment guarantees are increasingly used to secure performance from overseas suppliers and protect against non-delivery.

Contractual and Legal Complexity

Contractual terms face heightened scrutiny. Traditional force majeure provisions often don’t cover tariff-induced price hikes or material shortages, leading to litigation risks and financial exposure. Legal experts urge stakeholder to revise change-in-law clauses and force majeure definitions, ensuring tariffs are explicitly addressed. Clear documentation, transparency, and renegotiation with stakeholders—owners, suppliers, and subcontractors—continue to serve as critical tools for risk mitigation.

Strategic and Tactical Mitigation Measures

To adapt, construction firms can consider implementing multi-pronged strategies:

1. Procurement Tactics: Early purchasing of critical materials, locking in pricing via long-term contracts, and leveraging just-in-time delivery systems to avoid inventory surpluses are becoming common practices. Contractors are stockpiling essential materials such as rebar, roofing components, and mechanical systems, while accepting the higher insurance and warehousing costs involved. Firms should use the current 90-day reprieve to strategically time purchases and contract negotiations.

2. Supplier Diversification and Local Sourcing: Firms are shifting procurement to more stable markets or domestic manufacturers, often at higher upfront costs. This approach reduces dependence on tariff-heavy countries and allows for better price and quality control.

3. Alternative Materials and Value Engineering: Engineered timber, fiber-reinforced composites, and precast concrete are emerging as viable alternatives to tariffed materials. Design optimization to reduce steel volume—via efficient truss systems or modular construction—also helps control costs.

4. Legal Safeguards: Legal teams are emphasizing robust contract language, including escalation clauses indexed to global commodity prices and broadened risk-sharing mechanisms. Federal contractors should integrate Federal Acquisition Regulation (FAR) price adjustment clauses to hedge tariff-related volatility.

Broader Economic and Policy Implications

The ripple effects of U.S. tariffs extend beyond immediate material costs. Retaliatory actions—particularly by China, Canada, and the EU—shrink export markets for U.S.-based construction firms and reduce investment in major capital projects. These disruptions also impede green building initiatives. Tariffs on products like solar panels and insulation complicate compliance with the Department of Energy’s June 2024 National Definition of a Zero Emissions Building, which requires buildings to be highly energy-efficient, emit no operational GHGs, and source all energy from clean sources. Moreover, inflationary pressure from tariffs influences monetary policy. As costs rise, the Federal Reserve may raise interest rates to combat inflation, tighten further construction financing and slows project approvals. The recent tariff truce has boosted market confidence temporarily, but lasting impacts will depend on subsequent negotiations and policy clarity.

Conclusion: Building Resilience Through Strategic Response

In this volatile environment, construction stakeholders must prioritize flexibility, foresight, and legal precision. Those who adopt procurement practices, restructure contracts, and engage suppliers strategically can better navigate the uncertainty of ongoing tariff battles.

The outlook may remain murky, but the industry shows its capacity to weather global shocks—from COVID-19 to trade wars. By leveraging these lessons and embedding strategic safeguards into every phase of the project lifecycle, the construction industry preserves margins, manages risk, and keeps projects on track despite the challenges posed by an evolving trade environment.

Legal Update: May 29, 2025 – Courts Block Key Trump Tariffs

On May 29, 2025, a federal trade court and a Washington, D.C., district judge issued rulings finding that President Trump exceeded his legal authority under the International Emergency Economic Powers Act (IEEPA) by imposing sweeping tariffs, including a 10% baseline tariff on most U.S. imports. The D.C. injunction, which applies specifically to two companies, is delayed for 14 days to allow for a possible appeal, while the broader trade court ruling directs the administration to halt collection of the affected tariffs within 10 days.

However, the U.S. Court of Appeals for the Federal Circuit granted an emergency stay later the same day, temporarily allowing the Trump administration to continue collecting the tariffs while the appeal proceeds. Legal analysts and economists point out that Trump may still pursue alternative mechanisms to reimpose tariffs, including Section 122 (short-term tariffs of up to 15%), Section 301 (retaliatory trade enforcement), and Section 338 (targeting discriminatory practices), though these would require investigations and time to implement.

The decision provides only a temporary reprieve. Trading partners are reacting cautiously, with officials in Europe and Asia preparing for the possibility that Trump will quickly reinstate tariffs through other legal avenues. Notably, tariffs imposed under other authorities—such as Section 232 duties on steel, aluminum, and automobiles—remain unaffected and continue to impact construction input costs.

For construction stakeholders, this rapidly shifting legal and policy environment means continued volatility in materials pricing and sourcing. Contractors should use this window to revisit supplier agreements, secure price-adjusted terms, and prepare for both cost fluctuations and possible tariff refunds, depending on the outcome of ongoing litigation.

If you’re unsure how these tariff developments may impact your projects or contracts, contact us today for guidance and support.