Trump’s Potential Tariffs Spark Construction Cost Concerns

Amid ongoing trade negotiations, US President Donald Trump has announced plans to impose a 25% tariff on all steel and aluminum imports, including those from Canada and Mexico. This decision comes despite a temporary pause on broader tariffs on Mexican and Canadian goods. The move, which is expected to be announced today or tomorrow, has sparked concerns across multiple sectors, particularly in the construction industry, which heavily relies on these materials.

Impact on Construction Costs and Demand

The Associated General Contractors of America (AGC) has expressed concern over the potential impact of these tariffs on construction costs. Recent data shows that construction spending rose slightly from November to December, driven by increased demand for single-family homes and data centers. However, industry leaders warn that rising material costs due to tariffs could slow future growth.

Jeffrey Shoaf, CEO, AGC, says that cost increases could force contractors to raise bid prices, potentially undermining demand for new projects. "Despite declines in a few segments, construction demand remains relatively strong. But increasing the cost of a range of construction materials will prompt contractors to raise bid prices, potentially undermining future demand for projects," says Shoaf.

Recent AGC data shows that construction spending reached US$2.19 trillion in December, a 0.5% increase from November and a 4.3% rise from the previous year. Private residential spending grew by 1.5% in December, with single-family home construction rising by 1.0%. However, multifamily construction declined 10.5% year-over-year. With rising material costs, industry leaders fear these gains may be short-lived.

Housing Market Under Pressure

The US National Association of Home Builders (NAHB) has also voiced strong opposition to the tariffs, warning that they could exacerbate the ongoing housing affordability crisis. Over 70% of two key building materials — softwood lumber and gypsum — are imported from Canada and Mexico. NAHB Chairman Carl Harris says that these tariffs contradict Trump’s initial commitment to reducing housing costs.

“Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices. NAHB urges the administration to reconsider this action on tariffs, and we will continue to work with policymakers to eliminate barriers that make housing more costly and prevent builders from boosting housing production,” says Harris.

Back when the initial tariffs on Mexican and Canadian imports were announced, the association estimated that a 25% tariff on softwood lumber from Canada would increase the overall effective duty rate to nearly 40%, driving up home construction costs significantly. With over 70% of US imports of essential construction materials coming from Canada and Mexico, the impact on housing prices could be severe.

Economic Uncertainty and Supply Chain Disruptions

Industry analysts warn that ongoing uncertainty around Trump’s trade policies is already affecting investment and supply chain decisions. “Even if the tariffs are not implemented, as long as there is the threat of them, it is inflationary,” says Anirban Basu, Chief Economist, Associated Builders and Contractors, to Business Insider. “One of the things I hear from business leaders is this: all we want is certainty.” 

Basu says that if the tariffs take effect as planned, the construction industry could see substantial price hikes, as the cost of an average newly built home could rise by about US$40,000, a 10% increase. Lumber tariffs alone could add between US$8,000 and US$12,000 to home construction costs. Increased prices on imported plumbing fixtures, appliances, windows, and doors from China could contribute an additional US$8,000 to project costs and higher concrete and cement prices could add around US$3,000 per home.

With construction firms often locked into long-term contracts, sudden cost increases can be particularly damaging. Brian Turmail, Vice President of Public Affairs, AGC, also tells Business Insider that supply constraints would lead to longer project timelines and additional financial strain. “If you reduce supply at a time when you are trying to increase construction — simple math, you are going to make it more expensive and harder to source. And if people cannot source it, then they are going to put longer timelines in their bids,” says Turmail.

Industry Advocacy and Next Steps

Construction groups are ramping up lobbying efforts to prevent tariffs from taking effect. NAHB is urging lawmakers to press the administration for exemptions on building materials critical to housing. Additionally, AGC is working to ensure that decision-makers understand how inflation has already impacted the industry and the risks associated with new tariffs.

Trump’s intensified immigration enforcement policies could also bring significant economic consequences, particularly for industries heavily reliant on immigrant labor. One of the most affected sectors is construction, a critical pillar of the US economy. Labor costs are rising by 4%-5% annually, with workforce availability remaining the top challenge for contractors. However, costs could escalate further depending on the extent of immigration crackdowns and tariff policies, as MBN reported.