Tariffs likely to damage North American construction sector

03 February 2025 Consulting.ca

The heavy interdependence of the US and Canadian construction industries will lead to cost escalations, material delays, and supply disruptions if tariffs are introduced, according to HKA directors Syed Ali and Bulut Cinar.

President Donald Trump’s proposed tariffs include steel and aluminum imports, while additional potential tariffs on lumber and cement could further heighten challenges for Canada’s construction industry. Canada is the largest foreign supplier of steel and aluminum to the US, and also supplies approximately 30% of softwood lumber consumed in the US.

Retaliatory tariffs by the Canadian government could target US construction equipment, manufactured goods, and energy.

A reciprocal trade war would severely impact the North American economy, and by extension the construction sector. The total trade in goods and services between Canada and the US was $968 billion in 2023 – with Canada’s exports to the US accounting for over three-quarters of total exports and imports from the US representing over half of imports. Canada’s trade relationships with other countries, such as the EU or China, pale in comparison to its US relationship.

Ali and Cinar anticipate that the tariff impacts on labour, equipment, materials would lead to short- and long-term hits to residential, commercial, and infrastructure projects in Ontario, BC, British Columbia, New York, and California.

Increased costs and disruptions might make project stakeholders seek a change in scope, design, or specifications – leading to consequent claims and disputes. Indeed, Ali and Cinar say “change in scope” was the single largest contributor to claims and disputes in HKA's global Crux insight report.

Higher costs from tariffs may lead to delayed reception of materials, which may in turn delay project completion – and incite more potential claims.

The increased material costs will also further complicate budgeting and project planning. Meanwhile, current contracts might lack provisions for cost adjustment due to tariffs, leading to more claims and disputes.

Tariffs could also trigger an unemployment crisis via a mix of disrupted supply chain, increased costs, and labour mobility challenges.

Ali and Cinar say companies should take a proactive and comprehensive approach to navigate tariff-related challenges.

One step is reviewing contracts with legal counsel to examine if additional costs from tariffs can be recovered – including if costs increases can be passed on to clients or absorbed in project budgets.

Businesses should also include contingency for tariff-related cost increases in any projects currently in the bidding stage.

Additionally, they should evaluate alternative suppliers and adjust procurement to diversify supply chains to domestic and international sources, if possible.

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