Contractors Brace for Impact of Tariffs, Labor Challenges

New baseline 10 percent import tariffs plus additional country-specific charges will present challenges for all industries, and construction may have added challenges to contend with.

Exemptions for key building materials provide a bit of a silver lining, but industry pundits point to upward pressures on cost of those materials regardless. Along with rising prices due to tariffs and otherwise, the construction industry may also be experiencing labor issues.

It will take some time to truly understand the impact of tariffs and labor constraints, but the industry is evolving and experiencing ample disruption. Leaders of our Construction Practice have outlined some of the most likely impacts on the industry.

Emphasis on timing and managing cash flow

During times of economic uncertainty, cash flow is critical and with higher interest rates, the cost of borrowing is higher. Financial institutions have begun adjusting their underwriting to mitigate their own risk and it is impacting construction companies.

Cost increases are changing processes and procurement strategies for contractors. Materials that may have been ordered further into the project timeline are now being ordered as early as reasonably possible to secure a price and guarantee availability. These changes often require more cash up front, and working capital must stretch further, earlier as carrying costs increase. Cash flow management is critical in times of economic volatility, and improper management even on one single job can impact other jobs.

Compounded labor issues

The industry is contending with an already lean construction labor force, and officials are closely monitoring the hiring rate. Citing deportations of unauthorized workers one economist sees a very real possibility of a contraction in the labor force. If that becomes reality, and construction companies are not expanding their workforce there will be a serious strain on overall economic growth.

Uncertain state of future projects

As previously mentioned, there will be a lagging effect to these new complications, so projects already underway should be able to continue as planned. Through Q1 2025, nonresidential material prices increased approximately nine percent as builders scrambled to stockpile materials ahead of tariffs and overall construction inputs sit currently at 41 percent higher than in February 2020 to the tune of $1.26 trillion. However, with market uncertainty and price increases, construction investment could start to decline.

Going forward, projects with flexible designs and proven delivery partners may see stronger support. Projects that allow for scope adjustments, phasing or substitution of materials are better for uncertain markets. Many investors are also electing to renovate existing assets rather than pursue new development, where fewer materials are required and timelines are shorter.

Shift in industry norms

Escalating material costs and ongoing labor challenges will force the industry to evolve. Companies may begin to adopt advanced technologies more rapidly, such as automation and modular construction, to mitigate the reliance on scarce skilled labor. Rising material prices could also prompt firms to explore alternative, domestically sourced materials or sustainable practices to manage costs more effectively. Some contractors may choose to buy in bulk and store materials in storage yards so they have known costs rather than trying to predict what will happen with supply chains and tariffs.

Additionally, labor constraints may accelerate the industry's push toward workforce development initiatives, including enhanced training programs and retention strategies. Ultimately, these challenges could lead to greater innovation, efficiency, and long-term resilience within the construction sector. Companies will need to be agile and flexible to position themselves for success.

Count on proven industry guidance

Our Construction Practice has assisted clients through economic uncertainty and helped maximize savings through various tax credits and incentives. Fill out the form on this page to connect with a leader from our Construction Practice.