Tariffs on Construction Materials: A Perfect Storm for Contractors!

Listen up, folks! The construction industry is facing a perfect storm, and it's all thanks to those tariffs on key materials like steel, aluminum, and copper. The producer price index for materials and services used in nonresidential construction rose 0.2 percent in August and 2.5 percent from August 2024. That's right, folks, the costs are skyrocketing, and it's all because of those tariffs!

The Associated General Contractors of America (AGC) and NCCER recently released a survey that found rising costs were one of the key reasons for delayed, canceled, or scaled-back projects. Ken Simonson, the association’s chief economist, said, “The huge increases in steel and aluminum tariffs appears to have enabled domestic producers to push up their selling prices.” And guess what? 43 percent of contractors reported at least one project in the past six months had been canceled, postponed or scaled back because of higher costs. These price increases are prompting some owners to rethink planned construction projects.

The tariffs on steel and aluminum were raised to 50 percent on June 4, following an earlier increase to 25 percent on March 12. A 50 percent tariff on copper products and components took effect on August 1. In addition, broad tariffs covering most imports from nearly all major suppliers of construction materials were activated in early August, making additional cost increases likely in the months ahead.

Three major construction inputs contributed to the acceleration in year-over-year costs. The producer price index for aluminum mill shapes jumped 5.5 percent last month and 22.8 percent from August 2024. The index for steel mill products rose 1.5 percent in August and climbed by 13.1 percent over 12 months. The index for lumber and plywood increased 0.5 percent for the month and 4.8 percent year-over-year.

The recent AGC-NCCER survey found many contractors are already adjusting to the price increases. Two in five firms reported raising their own prices in response to tariffs, and many accelerated purchases to get ahead of further hikes. Another 16 percent said they had absorbed the higher costs themselves or worked with suppliers to share the burden. Nearly 40 percent of contractors reported they expect materials costs to climb further in the months ahead.

Association officials noted that the Trump administration has made progress in resolving trade disputes with several key nations. But they urged the administration to resolve outstanding disputes with China, Canada, Mexico and several other trading partners to allow for lower tariff rates and provide greater certainty on materials prices.

Jeffrey D. Shoaf, the chief executive officer of the Associated General Contractors of America, said, “There is a limit to how many price increases the market can absorb before owners put projects on hold.” The more the administration does to resolve trade disputes, provide more certainty and lower punitive tariff levels, the more demand for construction should rebound.

So, what do you do? You need to stay ahead of the curve, folks! Start looking for alternative suppliers or materials that are not subject to the same tariffs. Negotiate better terms with suppliers, such as securing long-term contracts or bulk discounts, to reduce the impact of tariff increases on your cost structure. And focus on improving efficiency and reducing waste in your construction processes. By optimizing the use of materials and minimizing waste, you can lower your overall material costs, even in the face of tariff increases.

The construction industry is facing a perfect storm, but with the right strategies, you can weather it and come out on top. So, get out there and make it happen!