Tariffs on Steel & Aluminum: A Storm Brewing for Construction Industry

The construction industry is bracing for a perfect storm as President Trump's administration imposes a 25% tariff on steel and a 10% tariff on aluminum. These tariffs, set to take effect on March 23, 2025, are likely to drive up construction costs, delay project completions, and invite retaliation from U.S. trading partners. The Associated General Contractors of America (AGC) has warned that these tariffs will significantly impact the construction industry, which is already grappling with rising material costs.

The producer price index for new nonresidential construction, a measure of what contractors report they would charge to put up a specific set of buildings, climbed 0.3 percent in January and 1.7 percent over the past 12 months. The cost of cement rose by 3.2 percent in January year-over-year, while ready-mixed concrete increased by 4.1 percent compared to a year ago. Asphalt paving mixtures saw a significant 8.6 percent rise. On the metals side, aluminum mill shapes climbed 9.7 percent for the year, and copper and brass mill shapes surged 12.3 percent during the past twelve months—both critical components in electrical and plumbing applications.

The AGC cautions that materials costs, particularly for steel and aluminum products, are likely to continue increasing now that the Trump administration has imposed a 25 percent tariff on those products. These increases will make the cost of many construction projects more expensive, potentially prompting some activity to be delayed or cancelled. The math is pretty simple, the more contractors have to pay for the materials they need, the more it will cost to build new infrastructure, housing, and economic development projects.

The construction industry is heavily reliant on steel and aluminum, with these materials being utilized in every project, from residential buildings to large infrastructure developments. The new tariffs will increase the cost of imported steel and aluminum, leading to higher overall project costs. Projects that have already been mobilized or are in the early stages of construction will feel this the most as contract values have been agreed upon under a pre-tariff cost structure; recovery may be difficult for the construction industry in these cases. Those in the estimation stage of the construction cycle have the opportunity to pivot into the higher cost structure, but who is to say President Trump won't walk this move back over the next few days as he recently did with Canada and Mexico.

The impact of these tariffs will be most felt in sectors that heavily utilize steel and aluminum, such as data centers, infrastructure projects, and commercial buildings. The surging demand for data centers, coupled with the increased cost of steel and aluminum, will significantly impact the construction of these facilities. Infrastructure projects, such as bridges, roads, and other public works, rely heavily on steel and aluminum, making them particularly vulnerable to the effects of the tariffs. Commercial buildings, including office buildings, retail spaces, and other properties, will also be affected by the higher cost of these materials.

In conclusion, the imposition of tariffs on steel and aluminum has significant implications for the construction industry, leading to increased material costs, supply chain disruptions, and potential retaliation from U.S. trading partners. The construction industry must work with financial professionals to forecast the impact of rising material costs, inflationary pressures, and supply chain disruptions, to proactively identify where triage will be needed. While all signs point to a challenging road ahead for the construction industry, we have the opportunity to navigate these challenges and maintain profitability by implementing cost management measures, diversifying suppliers, and exploring alternative construction methods.