Understanding the Impact on Costs, Supply Chains and Contracts

Key Takeaways:
  • Tariffs may raise material costs, but smart planning can help construction businesses stay profitable.
  • Domestic suppliers can strengthen supply chains and cut risks.
  • Construction companies that plan ahead, lock in pricing and adjust contracts can turn tariff challenges into long-term stability and growth.

 

The construction industry is no stranger to change, and with the U.S. implementing new tariffs on imported goods business owners may be wondering how this will affect their costs, supply chains and contracts. Tariffs can increase the cost of materials and create short-term challenges, but they also present opportunities for domestic suppliers, potentially strengthening the U.S. construction market in the long run.

While rising tariffs can drive up costs on certain products, the consensus from industry insiders is that the broader impact isn’t nearly as severe as some reports claim. For every steel price increase, there’s a new domestic mill or additional sourcing option that helps keep projects moving. The real question is: how can you adapt your plans and strategies to offset risks and uncover potential upsides?

Rather than viewing tariffs solely as an obstacle, construction companies can take a proactive approach by understanding the effects, adjusting sourcing strategies and even capitalizing on the economic shifts tariffs create.

How Tariffs Impact Construction Companies

  • Material Costs May Rise, But Stability Can Follow

One of the most immediate effects of tariffs is an increase in material costs, especially for imported steel, aluminum, lumber and electrical components. Construction businesses that rely on these imports may see a short-term price hike as tariffs make foreign products more expensive. However, history has shown that markets often stabilize as businesses adjust, finding alternative suppliers or increasing domestic production.

  • Domestic Steel Prices and Supply Chain – While domestic steel prices have increased since the latest tariffs were announced, the current situation is different from early COVID-19 disruptions. There’s no genuine shortage of materials this time around. In North America, manufacturers have sufficient capacity to meet demand, and the newly imposed tariffs do not block foreign imports entirely; they simply add a cost. Initially, some steel buyers panicked—placing unusually large orders as they had during the pandemic—but effective communication around supply availability and pushback from sales representatives have helped rein in that impulse buying.
  • Price Controls – There’s a natural ceiling on how high domestic prices can rise, because once they exceed the combined cost of importing plus tariffs, many buyers will look overseas again. This keeps prices in check and differs significantly from pandemic-era shortages, when certain materials were virtually impossible to source at any price.

For example, after the steel and aluminum tariffs of 2018, U.S. steel manufacturers increased production, leading to a more stable long-term pricing environment. While companies had to adjust initially, many benefited from more predictable pricing as reliance on foreign imports decreased.

What You Can Do:

  • Renegotiate supplier contracts to secure stable pricing.
  • Lock in bulk purchases ahead of anticipated tariff increases.
  • Monitor domestic production trends to assess when U.S. manufacturers will fill supply gaps.

 

  • Supply Chains May Shift, Creating New Domestic Opportunities

Tariffs encourage businesses to source materials domestically, which can strengthen the U.S. economy by driving demand for American-made products. This shift can lead to long-term benefits, such as:

  • More Reliable Supply Chains – Reducing dependency on foreign suppliers lowers the risk of shipping delays, trade disputes or sudden policy changes affecting materials.
  • Increased Domestic Manufacturing Jobs – More demand for U.S.-made construction materials can drive growth in American manufacturing and provide job opportunities in related industries.
  • Potential for New Supplier Relationships – Tariffs encourage businesses to explore alternative suppliers, leading to stronger and more resilient supply networks.

During the pandemic, many companies who relied almost exclusively on Asian suppliers struggled with shutdowns and logistics nightmares. Today, a more diversified supply chain across multiple regions means companies can pivot if tariffs or other challenges arise. Although certain sectors—most notably the auto industry—still rely heavily on Asian imports, much of the construction field has already broadened sourcing strategies.

What You Can Do:

  • Identify U.S. suppliers ramping up production in response to tariffs.
  • Explore tariff-free countries to find cost-effective alternatives.
  • Negotiate long-term contracts with new suppliers to hedge against volatility.

3 Ways to Manage Tariff Changes Effectively

  1. How to Adjust your Contracts

Construction businesses often operate on long-term contracts, meaning sudden increases in material costs due to tariffs can create financial strain if not properly accounted for. To protect your company, now is the time to review contracts with legal counsel and determine if any updates are necessary to reduce risk and maintain profitability.

Key Contract Provisions to Consider

  • Price Escalation Clauses – Allow for contract price adjustments if material costs rise beyond a predetermined percentage due to tariffs or other economic factors.
  • Alternative Sourcing Provisions – Provide flexibility to switch suppliers or materials without penalties if tariffs or trade restrictions significantly impact costs or availability.
  • Force Majeure Clauses – Clarify whether significant tariff increases or supply chain disruptions qualify as unforeseen circumstances that allow for contract adjustments or renegotiations.
  • Material Substitution Clauses – Permit the use of alternative materials that meet project specifications if originally planned materials become cost-prohibitive due to tariffs.
  • Termination Clauses – Establish conditions under which either party may exit a contract if unforeseen tariff-related cost increases make the project unfeasible.

Why You Should Consult an Attorney

Every construction business should work closely with legal counsel to ensure contracts include protections against tariff-related risks. A qualified attorney can help:

  • Determine whether your current contracts provide sufficient protection against unforeseen material cost increases.
  • Recommend necessary contract revisions to reduce financial exposure.
  • Ensure compliance with state and federal regulations while maintaining flexibility in contracts.
  • Help negotiate contract terms with clients, subcontractors, and suppliers to create a fair and enforceable agreement.

By proactively addressing contract language, businesses can avoid costly disputes and unexpected financial burdens when tariff-related challenges arise.

  1. Diversify Suppliers to Reduce Supply Chain Risk

One of the biggest opportunities tariffs create is the incentive to develop relationships with new suppliers. Construction businesses can benefit by:

  • Identifying U.S. Suppliers – Many domestic manufacturers ramp up production in response to tariffs, creating new sourcing options.
  • Exploring Tariff-Free Countries – Looking at imports from countries not affected by tariffs can provide cost-effective alternatives.
  • Negotiate Long-Term Agreements – Lock in pricing with stable domestic or international suppliers to hedge against future tariff fluctuations.
  • Build Relationships with Multiple Vendors – Relying on one supplier is risky—establish a network of reliable alternatives to avoid project delays.

By being proactive, construction businesses can secure stable supply chains while avoiding the risks of sudden price increases.

  1. Plan Ahead to Stay Competitive

The biggest mistake construction firms can make is waiting to react instead of planning for the inevitable. Tariffs are unpredictable, but companies that prepare can maintain profitability despite market shifts. Strategies include:

  • Bulk Purchasing Before Tariff Increases Take Effect – If tariffs are announced in advance, securing materials at current prices can provide cost savings.
  • Investing in Domestic Partnerships – Working closely with U.S. manufacturers to develop long-term supplier relationships.
  • Staying Informed on Trade Policy Changes – Follow government trade updates and consult industry associations and advisors to anticipate potential new tariffs.
  • Leverage Technology for Cost Management – Utilize construction software to track material price trends, automate supplier comparisons and streamline budgeting.

Questions?

Tariffs are a reality of the global economy, but they don’t have to be a roadblock. Construction businesses that stay informed, adjust sourcing strategies and plan ahead can navigate tariff-related changes successfully. While short-term price increases may be frustrating, the long-term benefits of a stronger domestic supply chain, greater pricing stability and economic growth make tariffs a mixed but manageable factor in the industry.

Rather than reacting to changes as they come, now is the time to take control—review contracts, explore new suppliers and position your business for long-term success. Construction is built on planning, and with the right approach, you can ensure your company remains competitive no matter how the market shifts.

If you’d like to discuss your situation, please contact an Adams Brown construction advisor.