The construction industry in the United States is grappling with significant challenges as recent tariff policies introduced by the Trump administration continue to reshape the cost landscape. Announced in early April 2025, these tariffs—initially dubbed “Liberation Day” tariffs—target a wide range of imported goods, with a particular impact on construction materials such as steel, aluminum, lumber, and cement. While a 90-day pause on some reciprocal tariffs was declared on April 9, 2025, the outlook for construction costs remains uncertain, driven by persistent trade policy volatility, rising material prices, and broader economic implications. This article explores the current trajectory of construction costs, the influence of recent tariff developments, and their potential long-term effects on the industry.
Immediate Impact of Tariffs on Construction Costs
The Associated Builders and Contractors (ABC) reported that construction input prices surged by 0.5% in March 2025, marking the third consecutive month of increases and reflecting a 9.7% annualized rise through the first quarter. This spike was largely attributed to tariff-driven price hikes in key materials, with iron, steel, steel mill products, and copper wire and cable seeing monthly increases exceeding 5%. Overall, construction input prices have risen by 41.6% since February 2020, a trend exacerbated by the anticipation and partial implementation of new tariffs.
The tariffs, which include a 10% baseline levy on imports from most countries and significantly higher duties on Chinese goods (up to 145% when combined with existing levies), have directly affected materials heavily reliant on foreign supply chains. For instance, the U.S. imports approximately 25% of its lumber from Canada, and cement, minerals, and metals are also sourced in large quantities from Canada, Mexico, and China. Posts on X have highlighted industry concerns, with estimates suggesting that tariffs could add $9,200 per home due to increased costs for lumber, drywall, and other materials.
The National Association of Home Builders (NAHB) has echoed these concerns, noting that 70% of lumber, 74% of drywall materials, and most ceiling fixtures used in U.S. housing construction are imported. NAHB Chief Economist Robert Dietz reported that builders are already experiencing cost increases, with the April Housing Market Index (HMI) indicating a decline in builder confidence due to tariff-related pressures. These rising costs threaten to exacerbate the ongoing housing affordability crisis, potentially slowing construction activity and limiting new inventory in an already strained market.
The 90-Day Tariff Pause: Temporary Relief or Prolonged Uncertainty?
On April 9, 2025, President Trump announced a 90-day suspension of reciprocal tariffs on most countries, excluding China, where duties were further escalated. This pause was intended to provide time for trade negotiations, but industry experts argue it offers limited relief. Ken Simonson, chief economist at the Associated General Contractors of America (AGC), noted that the pause is unlikely to restore confidence among project owners or contractors, particularly for projects requiring long-lead-time materials. The constant flux in tariff policy adds to uncertainty, discouraging investment and complicating cost forecasting.
Sarah Martin, associate director of forecasting at Dodge Construction Network, emphasized that the pause does little to alleviate market confusion. Businesses struggle to plan when material prices and sourcing options remain unpredictable. For instance, while exemptions on Canadian and Mexican timber were maintained, the threat of future tariff reinstatements keeps builders on edge. This uncertainty is already impacting project timelines, with some developers in regions like Atlanta advising a focus on predevelopment work to avoid immediate cost exposure.
Broader Economic Implications
The tariffs’ ripple effects extend beyond material costs, influencing labor markets, consumer spending, and global trade dynamics. The World Trade Organization (WTO) warned that global merchandise trade volume could decline by 0.2% in 2025 due to tariff-related disruptions, with a potential 1.5% drop if reciprocal tariffs escalate further. This downturn could limit the availability of imported materials, further driving up costs.
In the U.S., consumer sentiment has soured, with inflation expectations rising to 3.6% for the year ahead, according to the New York Federal Reserve’s survey. The Yale Budget Lab estimates that tariffs could cost the average household $4,700 annually due to higher prices, with middle-class households facing a $3,700 hit. These increased costs may curb consumer spending, reducing demand for new construction projects, particularly in the residential sector.
Businesses are already passing on tariff costs to consumers. For example, some companies have introduced explicit “tariff surcharges,” such as a $5 fee added by Dame, a sexual wellness brand, to offset import costs. In construction, similar cost pass-throughs are expected, with builders likely to raise home prices to cover material expenses.
Sector-Specific Challenges
Certain construction sectors are particularly vulnerable. The renewable energy sector, reliant on steel for wind turbines and power transmission infrastructure, faces higher costs and longer lead times due to steel tariffs. Analysts suggest that contract structures may need to evolve, incorporating clauses to renegotiate prices or terminate projects if tariff costs become prohibitive.
Residential construction, a cornerstone of the U.S. economy, is especially hard-hit. The NAHB has warned that tariff-induced cost increases could add 5–10% to new home prices, with some estimates suggesting a 25% rise in construction costs due to reliance on Canadian lumber and other imports. This could further strain housing affordability, already a critical issue amid post-COVID supply shortages.
Commercial construction, while less dependent on timber, is not immune. In regions like Portland, where steel-frame construction is less common, the impact may be muted, but federal contractors are expected to face significant cost pressures due to tariff-driven increases in steel and aluminum prices.
Long-Term Outlook and Industry Adaptation
Looking ahead, the construction industry faces a complex path. If the 90-day tariff pause leads to successful trade negotiations, some cost pressures may ease, particularly for materials sourced from Canada and Mexico. However, the entrenched trade war with China—where tariffs are now among the highest in decades—suggests that costs for Chinese-sourced materials, such as ceiling fixtures and electronics, will remain elevated.
To mitigate these challenges, some companies are exploring alternative supply chains. A CNBC survey indicated that 61% of businesses plan to relocate supply chains to lower-tariff countries rather than reshoring to the U.S., where costs could double. Countries like Vietnam and Brazil, already beneficiaries of production shifts from China, may see increased activity. However, building new supply chains takes time, and immediate cost relief is unlikely.
Technological advancements and policy adjustments could also play a role. The adoption of AI-driven tools, such as Swiggy’s Pyng for professional services, highlights the potential for technology to streamline operations and reduce costs in adjacent sectors. In construction, AI could optimize material sourcing or project management to offset tariff impacts. Additionally, evolving contract structures with flexible pricing clauses may help developers manage risks.
A Final Word
The outlook for construction costs in 2025 is marked by uncertainty and upward pressure, driven by recent tariff policies and their cascading effects on material prices, supply chains, and consumer confidence. While the 90-day tariff pause offers a brief reprieve, it does little to resolve the broader challenges facing the industry. Builders are likely to face continued cost increases, with estimates suggesting significant impacts on housing affordability and project viability. As the industry navigates this turbulent landscape, adaptation through alternative sourcing, technological innovation, and flexible contracting will be critical to mitigating the fallout. For now, stakeholders must brace for a period of volatility, with the hope that trade negotiations yield a more stable economic environment in the months ahead.
