Trump’s tariffs could disrupt construction projects

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President-elect Donald Trump has promised it impose generalized tariffs when he takes office in January. For commercial builders and their customers, this could mean big price increases.

While much is still uncertain about the plan, industry leaders are already preparing for its potential impact. The scale of the fees, and how rigorously they are enforced, will determine how much construction will be affected, said Chris Fisher, managing director of Troy, Mich.-based consulting group Ducker Carlisle.

“What will create challenges for commercial construction is if we see a significant amount of tariffs being announced, followed through and actually implemented,” Fisher said. The broad application could disrupt construction by raising the costs of materials from specific countries, potentially delaying or postponing projects altogether, he said.

Fisher said goods imported from China, including lower-cost commodity items such as certain metals, coatings, plumbing components and HVAC parts, could see significant price increases. Trump recently said on social media that he plans to impose an additional 10 percent tax on goods from China on top of the current tariffs.

Red iron steel, a type of structural steel that often comes from China, is also at risk of higher prices, said Bryan Ehrlich, president of NCE General Contractors, a San Antonio-based general contractor. China takes the place largest producer of crude steel in the worldaccording to the World Steel Association.

This could offset recent cost cuts. Steel prices have fallen significantly in the past year, with steel products down about 10 percent and iron and steel down 7 percent, said Anirban Basu, chief economist at Associated Builders and Contractors.

“My guess is that the Trump administration will put even higher tariffs on Chinese steel,” Basu said. “If you’re a steel consumer, that makes the price of steel higher than it would be otherwise.”

Electrical components, including internationally sourced gear parts, are also at risk of higher prices due to potential tariffs in China, Ehrlich said. Tariffs on these materials could also pose additional supply chain challenges for commercial builders.

Data center, manufacturing impacts

If these tariffs occur, the impacts could affect the data center and manufacturing construction sectors, where electrical components such as transformers, switches and switchgear are already struggling. key bottlenecks. The tariffs are likely to worsen these problems, further tightening project schedules in two of the most active segments of the construction industry.

Meanwhile, other types of steel, cement and aggregates, which come primarily from the country, are less vulnerable to blanket tariffs, Fisher said. Federal projects, which often require domestic materials, would likely also have minimal impact, for example.

Reduced competition, higher prices?

However, even these domestically produced items could be more expensive.

That’s because tariffs could reduce import competition, said Ken Simonson, chief economist for the Associated General Contractors of America. He said “new or increased tariffs have the potential to raise prices for a wide range of construction inputs, including domestically produced items that compete with imports.”

Ehrlich pointed to price dynamics during the COVID-19 pandemic, when supply chain disruptions and inflation drove up the costs of many materials. Even after those pressures eased, some suppliers kept prices inflated, he said.

Entrances to non-residential construction have increased by 39.2% as of February 2020, according to the US Bureau of Labor Statistics.

“What happened during COVID is that prices went up because of COVID, inflation or whatever excuse, and now that it’s gone, people recognize that they can keep the prices there and nobody’s going to care.” Ehrlich said. “I think what the tariffs are going to do is they’re going to have to make providers find ways to cut costs on their end and bring them back into the competitive market.”

All a bluff?

Some industry leaders question whether the proposed tariffs are more of a negotiating tactic than a certainty. Trump is likely to use his plan as leverage to strike deals or secure concessions rather than follow through with sweeping measures, Basu said.

“A lot of these announced tariffs are simply put in place by the president. He’s using that as bargaining leverage,” Basu said. “My best guess is that we will see a modest increase in certain specific fees, but nothing massive, as has been proposed.”

Fisher noted that the construction industry has seen tariffs announced in the past, but stressed that their full impact depends on whether they have teeth behind them.

“We’re a long way from that,” Fisher said. “We don’t know what level of actual tariffs will be implemented and how and what they will be implemented.”