Tariffs have made headlines again, with former U.S. President Donald Trump proposing a 25% tariff on all imports from Canada and Mexico. This policy could significantly impact the construction industry, which relies heavily on imported materials like steel, softwood lumber, and electronic equipment. But what does this mean for architects, contractors, and project owners?
In a recent episode of What the RFI?, host Matt Brennan explores the far-reaching consequences of tariffs on construction projects and the economy at large. Let’s break down the key takeaways.
What is a Tariff?
A tariff is essentially a tax on imported goods, imposed by a government. Importers pay these taxes when bringing goods into the country, and the costs often get passed down to consumers. In construction, where materials and equipment account for a large portion of project costs, tariffs can have a ripple effect on pricing, procurement, and project planning.
How Will Tariffs Impact Construction Costs?
Canada is a major exporter of construction materials to the U.S. Some of the biggest imports include:
- Steel and metal ores
- Softwood lumber (Over $8 billion annually)
- Motor vehicle parts
- Electronic equipment
The 25% tariff would add billions of dollars to the cost of materials. For instance, tariffs on softwood lumber alone would increase costs by $2 billion. This cost increase would be passed down the supply chain, affecting contractors, developers, and ultimately homebuyers and businesses.
The Steel Dilemma
Steel is a critical material in construction, affecting everything from structural frameworks to wiring and equipment. With a major portion of steel sourced from the U.S. and Canada, tariffs could:
- Increase the price of steel-related construction components.
- Force architects and engineers to reconsider material choices, potentially shifting towards mass timber buildings.
- Lead to significant budget overruns for projects already under contract.
Who Pays for the Tariffs?
This is where things get complicated. Tariffs don’t mean that Canada is paying the U.S. government directly—the costs fall on the importers, who then decide whether to absorb them or pass them on. This means:
- Developers and general contractors may face higher material costs.
- Homebuyers and business owners may see increased property prices due to rising construction costs.
- Governments funding public infrastructure projects will have to reevaluate budgets.
How Will Canada Respond?
Canadian officials are working to negotiate solutions. Prime Minister Justin Trudeau has met with U.S. leadership to discuss trade relations, and Canada has promised increased investments in national security measures, such as drones and border protections. However, the long-term impact remains uncertain.
Adding fuel to the fire, Ontario Premier Doug Ford recently made headlines by threatening to cut off electricity exports to U.S. states like Michigan, New York, and Minnesota in retaliation for Trump's proposed tariffs—and he will do it "with a smile on his face". Given that Ontario supplies enough electricity to power 1.5 million U.S. homes, this move could have serious economic repercussions.
For the construction industry, this escalation means even more uncertainty. If power disruptions occur, energy costs could rise, affecting everything from manufacturing processes to project site operations. It’s another layer of complexity that architects, contractors, and project managers must navigate.
How Will Tariffs Affect Construction Projects?
Pre-Tender Stage
If you're designing a project right now, expect:
Higher steel prices to affect everything from structural beams to mechanical systems.
The need to rethink material choices—could mass timber be a viable alternative?
Greater volatility in pricing, making cost estimation more challenging.
During Tendering
For projects in the bidding phase:
Contractors may increase bids to compensate for expected material cost hikes.
Price variations between general contractors will be higher than usual.
Developers may need to adjust budgets to reflect unpredictable cost fluctuations.
Post-Tender: Contracts Already Locked In
If a contract is already signed and tariffs take effect mid-project, disputes over pricing adjustments may arise. A case study from the podcast highlights a project where steel tariffs increased mid-construction. The contractor claimed extra costs due to the new tariff but couldn’t prove the increase was directly tied to their project. The lack of documentation made the claim difficult to validate, leading to legal and financial complications.
Long-Term Economic Impact
The Ontario Home Builders’ Association (OHBA) has voiced concerns that tariffs could further exacerbate the housing crisis in Canada. Since Canada is the largest steel and aluminum exporter to the U.S., the increased costs could lead to:
- Higher new home prices, reducing affordability.
- Slower housing starts due to declining investment.
- A weaker Canadian dollar, further increasing costs for imported materials.
On top of that, if Ontario follows through on cutting off power exports, U.S. construction projects that rely on Canadian electricity may face delays and additional expenses, making the situation even more unpredictable.
Final Thoughts: A Construction Industry at a Crossroads
The reality is that the construction industry relies on trade. Without a steady supply of affordable materials and energy, projects will become costlier and riskier. Architects, contractors, and developers must anticipate changes, explore alternative materials, and manage contracts carefully.
As Matt Brennan puts it:
“Trying to play a game of Settlers without trade—it just doesn’t work.”
Whether you're a project coordinator, contractor, or architect, staying informed about tariffs and trade policies is essential to navigating the future of construction.
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