The 2025 steel and aluminum tariffs are already reshaping cost structures in the construction sector, adding financial pressures to an industry that had hoped for more stability this year. On March 4, 2025, the U.S. imposed a 25% tariff on steel and aluminum imports from Canada and Mexico, with a broader 25% tariff on all steel and aluminum imports set for March 12, 2025, eliminating previous exemptions. The White House has framed these tariffs as a way to protect American steel and aluminum manufacturers, but they will also have significant cost implications for developers and contractors.
Pricing Increases
The impact on pricing is already becoming apparent with steel costs having risen since December 2024. Although these tariffs are intended to encourage greater domestic steel production, the U.S. does not currently produce enough to meet demand, historically relying on imports to fill the gaps. As a result, even with efforts to ramp up domestic supply, short and/or medium term dependence on imports from Brazil, China, Mexico, and Canada will likely continue, creating further price pressures. The prospect of retaliatory tariffs poses additional financial risk and uncertainty.
Projects That May Feel the Greatest Impact
Large-Scale Developments: High-rise apartments, office buildings, and major government projects will likely see the greatest financial strain due to their reliance on structural steel.
Infrastructure Projects: Roads, bridges, and rail developments will also experience cost escalations.
Smaller Projects & Alternative Approaches: Some developers may explore alternative materials, such as shipping container conversions, which may be used for affordable housing and smaller commercial properties.
Strategies to Navigate the Tariffs
With the tariffs now commencing, contract reviews and potential revisions and procurement adjustments are critical. Items for consideration:
Updating Contracts: Cost escalation and force majeure clauses should be reviewed or (from the contractor standpoint) added where applicable to address material price and supply chain fluctuations. Owners, on the other hand, may try to resist such clauses.
Exploring Domestic Alternatives: While U.S. steel mills are ramping up production, lead times and availability could remain a challenge. Evaluating current supply chain issues early and preparing for adjustments are key.
Assessing Project Viability: Developers should reassess project budgets, particularly for infrastructure-heavy and steel-intensive construction.
Engaging in Strategic Purchasing: Where possible, early bulk purchases or supplier negotiations can help lock in lower pricing before further price spikes occur.
Looking Ahead
While supply chain disruptions like those seen during the pandemic may be unlikely, the financial burden on developers, contractors, and suppliers will be significant. The industry is facing a new pricing reality. Additionally, more trade policy shifts could be on the horizon, making it essential for construction businesses to stay informed and proactive.
By planning ahead, firms can attempt to mitigate financial risks and adapt to the new trade environment as 2025 unfolds.
