Tariffs and Cost Increases: Are You Prepared?

Tariffs in the United States have been a focal point of economic policy in recent weeks, with significant changes impacting the flow of imports from various countries. A tariff is essentially a tax imposed on goods brought into the country, usually paid by the importer, which is often a domestic business. These tariffs can lead to higher costs, which are frequently passed down the supply chain, ultimately affecting prices for consumers and businesses alike.

In the construction industry, tariffs on materials such as steel, aluminum, and lumber have created uncertainty, raising the cost of construction projects and making it more difficult for businesses to predict future expenses. As the U.S. government continues to adjust its tariff policies, the impacts on the construction sector remains a critical issue.

Increased Material Costs

Many construction materials—like steel, aluminum, copper, lumber, and machinery—are imported. Tariffs on these materials can cause prices to spike, which:

• Raises overall project costs
• Reduces profit margins for contractors and developers
• Might lead to project delays or cancellations if budgets are strained

Reduced Demand

Higher construction costs can make new commercial projects less attractive to investors and developers. This can:

• Shrink the pipeline of upcoming projects
• Hit sectors like retail, office, and industrial construction especially hard
• Increase competition among contractors, tightening margins even further

Supply Chain Disruption

Tariffs can force builders to shift to alternative suppliers, leading to:

• Delays due to re-sourcing
• Lower-quality substitutes if preferred vendors are tariffed
• Uncertainty in timelines and pricing, making it harder to plan long-term projects

Price Volatility & Planning Challenges

Even the possibility of new tariffs introduces volatility in material prices, which makes:

• Cost estimating more difficult
• Long-term planning is riskier
• Fixed-price contracts are more financially dangerous

Be Proactive

It is very important to be proactive to soften the potential blow of tariffs. While protecting against tariffs can be challenging, it can be manageable with the right strategies. Ultimately, a proactive approach—monitoring the situation, being flexible with suppliers, and adjusting business practices—can help navigate tariff-related challenges.

Diversify Suppliers & Source Smart

• Look beyond countries affected by tariffs. Build relationships with suppliers in tariff free regions or countries with favorable trade agreements.
• Consider local or regional suppliers to avoid international freight hikes and delays.
• Lock in long-term contracts with reliable vendors at fixed rates, if possible.

Pre-Purchase or Bulk Buy Materials

• If you expect tariffs to hit key materials, buy in advance before price hikes take effect.
• Stockpile materials that are durable and used frequently (like steel, copper wiring, aluminum framing, etc.).

Adjust Contract Language

• Include escalation clauses in contracts that allow you to raise prices if material costs increase due to tariffs.
• Use cost-plus or time-and-materials contracts where feasible, instead of fixed-price models.
• Clearly define who bears the risk of price fluctuations.

Review and Restructure Bids

• Reassess your cost estimates regularly, especially for longer-term projects.
• Build in buffer pricing to account for potential tariff impacts.
• Use historical data and market forecasts to adjust margins more intelligently.

Monitor Tariff & Trade Policy

• Keep tabs on government trade policies. If you see a tariff being discussed, you’ll want to react early—before others scramble and prices spike.
• Join trade associations that often lobby on behalf of contractors and give early warnings.

Joseph Garfunkel, Associate with Poyner Spruill, LLP, works with developers, architects, owners, sureties, general contractors, and suppliers in matters such as payment disputes, mechanic liens, delay claims, and defective construction in North Carolina and South Carolina. He represents contractors and homeowners before the North Carolina Licensing Board for General Contractors, including claims under the Homeowners Recovery Fund. He is based in Poyner Spruill’s Charlotte office.