Steel and Concrete Prices Soar Amid Tariff Threats

The construction industry is facing a perfect storm of rising material costs and economic uncertainty, with steel and concrete prices remaining elevated while most other materials stay flat. The Associated General Contractors of America (AGC) has warned that tariff pressures could reignite cost volatility, undermining the benefits of new tax and regulatory efforts. The producer price index for materials and services used in nonresidential construction rose 0.2 percent in June and 2.3 percent from June 2024, the largest 12-month increase since February 2023. This trend is alarming, as it indicates that construction costs are on the rise even before the steepest proposed tariffs have taken effect.

The tariff increases on steel and aluminum, which were hiked to 50 percent on June 4 from the 25 percent rate that took effect on March 12, are already having a significant impact on the construction industry. President Trump has announced a 50 percent tariff on copper to take effect on August 1, and has threatened to impose much higher tariffs on most imports from almost all of the nations that supply vital construction materials. These tariffs could drive up a wide range of construction costs, further undermining demand for construction.

Three major construction inputs contributed to the acceleration in year-over-year costs. The producer price index for aluminum mill shapes climbed 6.3 percent from June 2024 to last month, while the index for steel mill products rose 5.1 percent and the index for lumber and wood products increased 4.8 percent. There were much more extreme increases for certain types of steel used in construction, such as 22.5 percent for fabricated structural metal for bridges and 8.3 percent for bar joists and rebar. These increases are a direct result of the tariffs, which have made it more expensive for contractors to source the materials they need.

The impacts of new tariffs have the potential to undermine some of the benefits for the industry that came out of the One Big Beautiful Bill Act. That measure provided tax certainty and financial incentives for firms to modernize equipment and invest in innovative new procedures. But those benefits could be outweighed if rising materials costs prompt more developers to delay or cancel planned projects. The construction industry is poised to benefit from greater tax certainty as well as the administration’s efforts to streamline permitting and reduce needless regulatory burdens. However, finding a way to provide greater certainty on materials prices is the best way to make sure the new tax and regulatory approach have the best possible impact on economic activity.

The tariff increases on steel, aluminum, and copper have significantly impacted the overall cost structure of construction projects. These tariffs have led to higher material costs, which in turn increase the overall budget for construction projects. For instance, the price of steel, which is a crucial material in construction, has seen notable fluctuations. As of January 13, 2025, the prices for various types of steel, such as Galvanized Spiral Welded Pipe, Galvanized Welded Pipe, and Spiral Welded Pipe, were recorded in China. These price increases directly affect the cost of construction materials, making projects more expensive.

To mitigate these increased costs, contractors can employ several strategies. One effective strategy is to source materials from regions with lower tariffs or where the impact of tariffs is less severe. For example, contractors can explore sourcing steel from countries like India, where the steel market has shown stability due to steady upstream and downstream factors, as mentioned in the steel price trend for the first half of 2024. Additionally, contractors can negotiate better prices with suppliers by committing to long-term contracts or bulk purchases. This approach can help secure materials at a lower cost, even with the increased tariffs.

Another strategy is to optimize the use of materials by employing efficient construction techniques and designs that require less material. For instance, using prefabricated steel components can reduce waste and lower the overall material cost. Contractors can also consider using alternative materials that are not subject to the same tariffs. For example, using concrete instead of steel for certain structural elements can help reduce costs, as concrete is generally more affordable than steel. The cost of concrete, as of January 13, 2025, was recorded for various types, such as Carbon Structural Steel Plate and Low Alloy High Strength Plate, indicating its affordability compared to steel.

Furthermore, contractors can invest in technology and automation to improve efficiency and reduce labor costs, which can offset the increased material costs. By adopting these strategies, contractors can mitigate the impact of tariff increases on their construction projects and maintain profitability.

The potential long-term economic implications of the proposed tariffs on construction materials are multifaceted and could significantly impact the broader economic landscape beyond the construction industry. Increased costs for construction materials could lead to reduced profitability for construction companies. This could result in layoffs, reduced investment in new projects, and a slowdown in the construction sector. For example, the steel market in Asia experienced notable fluctuations in the last two quarters of 2023, with prices dropping from around 4175 USD/MT in July '23 to about 3780 USD/MT in December '23. This volatility could be exacerbated by tariffs, leading to further instability in the market.

The construction industry is a significant employer and contributor to GDP. A slowdown in construction could have ripple effects on other sectors, such as manufacturing, transportation, and retail. For instance, the steel market in North America saw fluctuating prices during the second half of 2023, with prices remaining low throughout the third quarter but beginning to recover at the start of the fourth quarter. Tariffs could disrupt this recovery, leading to further economic instability.

Increased costs for construction materials could contribute to broader inflationary pressures. Higher construction costs could lead to increased prices for goods and services, as well as higher rents and housing prices. This could erode purchasing power for consumers and lead to a reduction in overall economic activity.

Tariffs on construction materials could lead to retaliatory measures from other countries, potentially escalating trade tensions. This could disrupt global supply chains and lead to further economic instability. For example, the European steel market faced persistent challenges due to ongoing logistical and freight disruptions, with delivery times for steel shipments seeing significant delays. Tariffs could exacerbate these issues, leading to further disruptions in the global steel market.

Higher costs for construction materials could incentivize innovation and the development of alternative materials. This could lead to long-term benefits for the economy, as new materials and technologies are developed. For instance, the steel market in Asia is expected to show improvements in the post-monsoon season, with large public sector construction and infrastructure investments positively driving the steel market. Tariffs could accelerate this trend, leading to the development of new materials and technologies.

In conclusion, the proposed tariffs on construction materials could have significant long-term economic implications, affecting the construction industry and the broader economic landscape. Increased costs, reduced profitability, economic ripple effects, inflationary pressures, trade tensions, and innovation are all potential outcomes that could shape the economic landscape in the years to come.