The recent tariff storm imposed by the U.S. government is predicted to have significant ramifications for the construction industry, particularly in sectors reliant on imported steel, aluminum, and lumber. These policy changes introduce new risks, contract disputes, and regulatory challenges that must be carefully navigated.
On March 12, 2025, the Trump administration officially implemented a series of sweeping trade reforms, which according to the press release issued by the White House, was aimed at protecting domestic industries. These changes include a 25%tariff on all imported steel and aluminum, the elimination of alternative agreements that previously exempted key trade partners like Canada, Mexico, and the European Union, and the application of strict "melted and poured standards" to ensure steel originates from tariff-complaint countries. Tariffs were also expanded to include downstream producers, meaning higher costs for processed steel and aluminum products.i
Additionally, all general approved exclusions were terminated, making it harder for individual companies to secure exemptions. The administration has also ramped up enforcement against misclassification and duty evasion, which could lead to increased regulatory scrutiny and legal challenges.ii These measures have already triggered price hikes and market volatility, particularly in construction, where raw materials constitute a substantial portion of the project costs.
Steel and aluminum are essential in construction for framing, beams, rebar, siding, and roofing. The new tariffs will significantly increase the cost of these materials, directly impacting commercial and residential projects. Developers and general contractors will likely pass these increased costs on to their own clients, making construction more expensive and potentially slowing down new developments. Analysts from UBS estimate that the new tariffs will affect approximately 7% of homebuilding materials and equipment that are imported, and builders are now facing an average tariff rate of 22%. This could raise the cost of building an average house by around $6,400.iii
With Canada previously serving as the largest exporter of steel and aluminum to the U.S., the removal of trade exemptions is forcing businesses to seek alternative suppliers. Experts say this transition could lead to material shortages, longer lead times, and increased reliance on domestic producers, who may struggle to scale up production quickly enough to meet demand.
The U.S.-Canada softwood lumber dispute, a longstanding trade conflict, has been further exacerbated by the new tariffs. The administration has imposed a 25% tariff on most Canadian goods, including lumber, a significant jump from the previous 8.6% duty. Given that Canadian lumber is a major supply source for U.S. homebuilders, this increase is expected to drive up costs for framing, flooring, and other structural components.iv
According to the National Association of Homebuilders, softwood lumber and gypsum, which is used for drywall, are largely sourced from Canada and Mexico:
- "Of $5 billion worth of sawmill and wood products imported in 2023, nearly 70% of these imports came from Canada. Many of these imports are already subject to a 14.5% antidumping and countervailing duties (AD/CVD) tariff. Total imports of sawmill and wood products from Canada totaled $5.8 billion.
- The U.S. imported $456 million worth of lime and gypsum products in 2023, with 71% of these products originating from Mexico. Imports of lime and gypsum products from Mexico totaled $352 million in 2023."v
The combination of higher costs, supply chain disruptions, and market uncertainty will likely lead to project delays, potentially triggering liquidated damages claims from property owners and developers. Contractors and suppliers facing delays may also encounter breach of contract disputes if they cannot fulfill obligations on time due to tariff-related price increases or material shortages. As material costs rise and supply chains face strain, construction-related disputes are expected to increase, particularly claims for liquidated and consequential damages due to delays, breach of contract cases where parties cannot meet original pricing or completion terms, and force majeure defenses invoked by contractors citing tariff-related disruptions.
Contract adjustments and compliance risks will also become more prevalent as parties in the construction industry review and revise contracts to account for changing costs and supply conditions. Many will likely incorporate price escalation clauses or “tariff clauses” that allow for adjustments based on material cost increases, and specifically reference changes due to the imposition of tariffs. Others may seek to strengthen force majeure provisions to account for trade policy changes that could disrupt their supply chains. Still others may include addition provisions regarding delays caused by material procurement issues. Ensuring compliance with new tariff regulations, particularly regarding classification and country-of-origin rules, will be essential to avoid costly penalties and disputes.vi
As the U.S. steel industry struggles to ramp up production, short-term supply gaps may lead to more aggressive enforcement of trade policies, anti-dumping laws, and tariff compliance measures. There is also potential for investigations into tariff misclassification and duty evasion, challenges to domestic steel quality and supply capacity, and further retaliation from Canada and other former trade partners, which could further complicate an already uncertain market.
The new U.S. tariffs on steel, aluminum and lumber present major challenges for the construction industry. Leading to higher costs, supply chain disruptions, and increased legal disputes. The full impact of these tariffs may not be felt for months or even years, but companies involved in construction must take proactive steps to anticipate and mitigate the risks associated with price volatility, project delays, and regulatory scrutiny. As the industry adapts to these new trade policies, contract negotiations, dispute resolution, and regulatory compliance will be critical factors in determining how businesses weather the changing economic landscape.
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i White House Fact Sheet. February 2, 2025.
ii Id.
iii McDade, Aaron. Homebuilder Stocks Slump as Trump Tariffs Endanger Housing Market Recovery. Investopedia (April 3. 2025)
iv Dezember, Ryan. Tariffs Send Lumber Prices to 30-Month High. Wall Street Journal (March 2025).
v How Tariffs Impact the Home Building Industry. Home Builders Association of America: Industry News. (11, February, 2025).
vi Whiteley, Richard and Sampson, Phillip, Jr. Important Terms for Price Escalation Clauses to Mitigate the Inflationary Effect of Tariffs on Construction Materials. The National Law Review (Feb. 12, 2025).