Tariff Troubles
In February 2025, President Donald Trump enacted a series of tariffs, including a 25% levy on steel and aluminum imports, aiming to revitalize domestic production. More tariffs have been announced since then, and other countries like Canada and China are starting to implement retaliatory tariffs.
The most immediate impact on the construction industry will be material prices. According to the Associated General Contractors of America (AGC), the price of materials and services for non-residential construction already climbed 0.7% in January and 0.5% in February, with tariffs likely to push prices higher as they continue to be implemented. If you’re a developer, contractor, or supplier, you’re probably already feeling the pinch—and you may be questioning why your project budget now looks like a bad Vegas gamble.
As the AGC notes:
The producer price index for inputs to new nonresidential construction—a weighted average of all materials and certain services used in new construction—increased for the second month in a row. Meanwhile, the index for new nonresidential building construction—a measure of what contractors report they would charge to put up a specific set of buildings—dipped by 0.1 percent in February, following an increase of 0.3 percent in January. The fact that input costs are outstripping bid prices implies that contractors have not been able to pass along the cost increases enough to maintain profit margins, Simonson said.
If your project relies on imported materials (and let’s be honest—most do), you’re looking at higher costs, tighter margins, and a whole lot more stress.
Contracting Strategies That Save Your Bacon
You might not be able to stop a global trade war, but you can make sure you don’t get burned by it—through thoughtful contract drafting. Developers, contractors, and vendors can dodge tariff headaches with smart contract structures (think: cost-plus vs. lump sum) and key clauses. Here are a few examples:
Prior Escalation Clauses. Protect your bottom line by adjusting contract prices when material costs spike beyond negotiated/agreed thresholds. No more eating unexpected tariff costs.
Force Majeure Clauses. Decide upfront: Are tariffs an “act of God” or just an act of government? Define it clearly to avoid nasty surprises or prolonged litigation.
Change-in-Law Clauses. When new tariffs hit, who pays? Lock in contract terms that let you adjust pricing if the rules (and costs) change mid-project. Or, specifically exclude tariffs from any price adjustments based on changes in law.
If you found this post helpful, check out its sequel.
