AGC's Simonson: Construction Industry Could Face Tariff Trouble

We talked to the Associated General Contractors of America about the impending high tariffs and what the construction industry can do before they are enacted.

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The IOS market was heavily relied on during the height of the pandemic but hasn’t had any big shifts since. In the case of wanting to stay away from the impending costly fees, IOS would be an option for contractors who don’t have enough storage to stockpile materials.
The IOS market was heavily relied on during the height of the pandemic but hasn’t had any big shifts since. In the case of wanting to stay away from the impending costly fees, IOS would be an option for contractors who don’t have enough storage to stockpile materials.
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As the new year is starting up and U.S. citizens turn their sights to the 2025-2029 term president-elect Donald Trump's new term and what it could mean, some of the construction industry is beginning to worry about the proposed tariffs. It has been anticipated that the Trump administration will place high tariffs on China, Mexico, and Canada. The tariff on China is planned to be set at the extremely high rate of 60% while Mexico and Canada will have a 25% tariff.

While some construction professionals and experts worry this will be destructive for the industry, others predict that it will be beneficial to the United States construction and manufacturing industries. 

The anticipated tariffs may make room for American manufacturers to become highly successful or they may overwhelm American manufacturers and cause a rise in the already towering labor shortage. The question is, which way will it go and what can U.S. contractors expect? 

What We Know 

While there are a lot of aspects that are up in the air, there are a few known effects of the impending tariffs. It is often the case very that tariffs raise prices. For the construction industry, this fact is going to cause some turmoil. Much of the industry sources materials and equipment from overseas as it is often less expensive than purchasing within the U.S.

With the threatened tariffs, these companies will be forced to find an alternative or pay a hefty fee for product. Although the exact extent of affected materials and items is still not clear, there are some known products that will take a hit with the tariffs. 

“Contractors should expect the cost of lumber, steel, aluminum, and many finished products to go up—perhaps steeply,” said Chief Economist Ken Simonson, Associated General Contractors of America (AGC)

On The Lookout

There are only so many things that are for certain at this time but there are a lot of things to consider and keep your eyes open for. 

For small businesses, the effects of the tariffs are likely to hit harder. Small businesses tend to have fewer resources in comparison to larger businesses. 

Simonson said, “Small businesses generally have less leverage on pricing than larger firms, so they are more likely to bear the full brunt of any tariff increases.”

Even so, small businesses may not be very affected because it all depends on where they source their materials from. If their sources happen to be from China, Mexico, or Canada, they are sure to feel the rising tariffs. Businesses may be able to source similar products from other countries in order to avoid the tariffs but they still might run into more expensive product. 

“When possible, contractors should look for alternative products or nations that are not subject to a tariff,” Simonson explained. “But, competing suppliers are likely to adjust their prices in line with suppliers that are subject to tariffs.”

Another Route

Other than finding a new source, if businesses and contractors source materials from one of the countries impacted by the higher tariff they could consider ordering supplies prior to the tariffs kicking in. While this might sound like a good option, there are a few things you need to take into account before going on a shopping spree.

Space

Granted the idea of pre-purchasing a bunch of supplies may sound appealing, but an issue contractors and businesses may run into is the question of room. Do you have room to store the excessive number of products that you would purchase to avoid tariff fees? 

Being in need of storage could potentially be detrimental for businesses but, in turn, it may open up a new opportunity for the industrial outdoor storage (IOS) market.

The IOS market was heavily relied on during the height of the pandemic but hasn’t had any big shifts since. In the case of wanting to stay away from the impending costly fees, IOS would be an option for contractors who don’t have enough storage to stockpile materials.

The only issues that companies might have with IOS are the fact that they will have to factor in the cost of storing products in their budgeting and the fluctuations of weather. While the cost of storing materials in IOS is not high, weather might be the larger issue. 

Although the materials will be stored inside a storage unit, the unit itself is subject to the climate outdoors. If stored items are susceptible to damage depending on the temperature, humidity, etc., IOS might not be a great option.

Jobs

Buying ahead of time can be a gamble. Without a surefire way to gain back the money spent on early purchasing, you are at risk of losing money - if you are unable to put the products to use, you are losing money. 

“Earlier purchasing means the contractor or customer must pay earlier for the products, for storing and insuring them, and face the risk of loss if a project is canceled or modified,” said Simonson.

For some, putting pre-purchased products to use is not a concern. For others, this may be a factor to stop and think about before moving forward with paying for materials early. 

Usability and Obtainment

Even if contractors and companies have the means to purchase and store a stockpile of materials and products, there is the issue of accessing and finding uses for each item. Just like you will lose money if you can’t get enough jobs to put excess materials to use, you will lose money if the items can no longer be used.

Simonson explained, “Many products such as ready-mix concrete cannot be stored. For others, it may be impossible to speed up acquisition. Lead times for transformers, for instance, have been as long as two years.”

Other than the matter of usability, there is another hurdle to face - acquisition. Not all products can be obtained ahead of time and in bulk. If this is the case for the items you would need, it may be time to rethink pre-purchasing as your solution. 

A Mixed Review

The potential for these tariffs could go a variety of ways and there is no way to predict the exact outcome. Some experts are sure that this economic change will be a positive thing while others fear that it will only harm. To make your own decision, there are some things to consider from both sides. 

Pros

Simonson suggested that manufacturers in the U.S. may feel the impending tariffs are a great opportunity to gain customers. He also mentioned that producers outside the U.S. may decide to relocate to the U.S., aiming to avoid the tariffs. His change could be good for the U.S. economy. 

The tariffs have the potential to:

  • Shorten the supply chain for products
  • Bring the focus back to American manufacturers
  • Provide additional job opportunities for Americans
  • Benefit the U.S. economy

Cons

With high tariffs being imposed on some of the big producers of construction materials and products, there is a lot of chaos that could ensue. Turning to alternative manufacturers and pre-purchasing products can have a lot of issues. 

The tariffs have the potential to:

  • Cause an even larger labor shortage
  • Lengthen delivery times
  • Result in inflation
  • Increase construction completion times

On The Horizon

Whether you're in favor of it or not, high tariffs have been threatened by President-Eelct Trump. There are opportunities for U.S. manufacturers and the economy as a whole to benefit from these tariffs. But there are also opportunities for retaliation and tribulation. Even though there is potential for the tariffs to result in the growth of American manufacturers, this is likely not going to be the case.

“Most tariffs result mainly in higher prices, not expanded domestic production. And tariffs often trigger retaliation that can lead to reduced U.S. production or exports of certain products,” said Simonson. “Tariffs tend to distort supply chains and may lengthen delivery times. Higher input costs may cause some owners to cancel planned projects.”

Contractors may face various issues due to tariff-induced manufacturing shifts. If tariffs instead result in a shorter supply chain, this would be because the U.S. manufacturers took over and producers relocated to the U.S. But with more production occurring in the U.S. there will need to be more construction workers. This can present a new problem if American manufacturers are unable to find the workers they need to produce larger amounts of products and materials

Simonson explained, “Manufacturers, like contractors, are struggling to find and train workers to replace retirees and add to capacity.”

Just like the construction industry is struggling with a small labor pool, growing manufacturers would struggle as they would be dipping into that same pool. The increased use of U.S. manufacturers will bring a higher number of orders.

“U.S. manufacturers of products that are subject to new tariffs may experience higher orders and are likely to raise prices in line with the tariffs, improving their prospects for profits,” said Simonson.

The increased price is a good thing for the manufacturers but is a hardship for contractors and companies. The idea of high tariffs is a complicated back-and-forth of positives and negatives. While the tariffs are not set in stone, they have been proposed by the Trump Administration and are a real possibility. It’s important to keep an eye out on the economy and the state of the tariffs while considering your own situation, job, and business. Do your research when making a decision on how to move forward and make sure it is the best move for you.

Tariffs certainly aren’t a new concept for the industry but the approaching tariffs are undeniably a new hurdle to jump. The way you go about it will depend on you and should be founded on analysis and certainty as we move into an uncertain horizon.

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