Tariffs Threaten to Push Highway Project Costs Higher

These price increases are particularly difficult for firms that are engaged in fixed price construction contracts where they are forced to absorb these cost increases.

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The Trump administration's long-threatened imposition of tariffs on steel and aluminum imported from Canada, Mexico and the European Union went into effect at midnight on May 31 – a move that is hiking construction costs for state departments of transportation across the country, especially for steel-intensive bridge projects, while also potentially forcing a redirection of funds away from future endeavors.

"The reality is we have a fixed source of federal funding, so as our topline costs go up, there is less money available for everything else," Shoshana Lew, COO at the Rhode Island Depart of Transportation, explained to the AASHTO Journal. "It creates a domino effect in terms of project funding for us. So while we won't undo a current project, it does mean some projects down the road won't get funded."

Yet RIDOT also noted that, since the tariff issue became prominent nearly three months ago, it's already pushed steel prices higher. From March to April this year, the Producer Price Index (PPI) for semi-finished steel mill products jumped from 242.8 to 246.6; a one-month increase of 1.56 percent and a year-over-year increase of 4.89 percent. 

Similarly, the PPI for all steel mill products increased from 195.5 in March to 201.7 in April; a 3.17 percent increase for the month and 7.4 percent year-over-year, the agency added.

In anticipation of steel price escalations, RIDOT said it is implementing a retroactive and reciprocal steel price escalation policy, which would allow for cost adjustments concerning steel purchases whenever prices fluctuate more than 5 percent. Because the steel price escalation is primarily the result of federal action—namely, the aforementioned actions of President Trump—RIDOT requested that the Federal Highway Administration allow it to use federal funds to make price adjustments on those RIDOT projects using federal funding to purchase steel.

Read more from AASHTO.