ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø

Lumber is a vital input to construction, especially for single-family housing. While the US produces about 90% of the wood products used in construction, home builders prefer Canadian lumber over Southern pine lumber for residential construction due to its ease of use. Builders have lowered their reliance on Canadian lumber in recent years but are still highly exposed. It is expected that the South’s production will accelerate under the higher tariff regime, but not overnight.²

In 2017, the US imposed 20% national security-related tariffs on Canadian softwood lumber; prices surged by 80% within months. Smaller home builders, few of which survived the housing bust a decade prior,^3Ìý saw their profit margins squeezed.

Multifamily developers similarly paid about $3,000 more per apartment unit for wood.⁴ The result was some projects were delayed or scaled down. Affordable housing projects struggled to absorb unexpected cost hikes, which further undermined the supply and affordability of housing for low-income households.

Steel and aluminum are also of importance to construction, with the US importing 27% of steel⁵ and 47% of aluminum⁶ in 2024; structural steel, rebar, aluminum windows, siding and other metal components are basic inputs. Tariffs on these inputs are not new. Back in 2002, steel tariffs ranging from 8-30% were introduced.

Those were lifted three years later after studies found higher steel prices cost more US jobs than the tariffs protected. One report estimated the 2002 tariffs led to 200,000 job losses in steel-using sectors (automotive, construction, machinery) due to increased costs.⁷ Uncertainty triggered by tariffs back then caused shortages and project delays.

In March of 2018, the US imposed 25% tariffs on steel and 10% on aluminum. In response, construction input prices increased at the fastest rate in a decade; by June 2018, the Producer Price Index (PPI) for all inputs to construction was up 9.3% year-over-year, the steepest increase since 2008.⁸ Steel mill product prices climbed 14% while aluminum mill shapes jumped 8.5%. Tariffs are not included in the PPI calculations; the PPI was understating the impact of tariffs on overall costs.

During that episode, contractors on fixed-price contracts suddenly faced much higher materials costs than anticipated, squeezing profit margins. Costs rose 8-9%, while a study by the Associated General Contractors (AGC) found that the prices charged rose only 4%; the difference showed up as a blow to profits and project delays.⁹

Tariffs did provide short-lived benefits to the domestic industries that produced the tariffed goods. US steel and aluminum producers benefited from reduced import competition, prompting higher domestic output and new investments. By 2021, US crude steel production was about 5% higher than pre-tariff levels in 2017; capacity utilization at steel mills hit a 14-year high. That figure has since fallen to levels last seen in 2016, excluding the pandemic.¹⁰

The US International Trade Commission (USITC) estimated that those tariffs caused a 0.6% average decrease in production among downstream industries (those that consume steel and aluminum) and raised their overall input costs by about 0.2% on average.¹¹

Builders� efforts to source domestically produced inputs rather than imports led to delays in major infrastructure projects as they struggled to source enough American-made steel. Construction companies had to navigate longer lead times, spot shortages and the need to qualify new domestic suppliers for specific products.

USITC’s analysis found that US output in downstream sectors was about $3.5 billion lower in 2021 because of the tariffs, a sign that economy-wide, the tariffs dampened growth in industries like construction even as they temporarily boosted primary metal production.

Appliances are an important input for developers and renovators. Washing machine tariffs were put in place in 2017 and remained until 2023. Prices rose for not only washing machines, but dryers as well (which were not tariffed) since they were often sold as a set.

According to the University of Chicago, about 2000 jobs were created from the reshoring of washing machine manufacturing. The problem was the cost of creating those jobs, which was $820,000 per job created.¹² That begs the question of how we could have better allocated resources to lift the fortunes of workers displaced by trade. Training, upskilling, and even directly compensating workers displaced by trade would have been less costly.    

Goods manufactured in China are often used in construction, especially residential. Starting in 2018, the US levied broad tariffs on goods from China. Many construction-relevant products were caught in those tariffs; 463 items used in home construction and remodeling fell under the third round of the tariffs in a range of 10% to 25%.

The National Association of Home Builders (NAHB) calculated that at a 25% rate, that list would add about $2.5 billion in annual costs to US residential construction.¹³ The items ranged from flooring, cabinets, lighting fixtures, plumbing parts, HVAC equipment, nails and saws.

Vehicles are a vital tool for the construction industry; builders buy pickups and heavy trucks. The vehicles used by the industry are made mostly by US-headquartered companies that rely on imported parts, mostly from Mexico and Canada.

The United States-Mexico-Canada Agreement (USMCA), a replacement for NAFTA, came into effect in 2020. It tightened automotive rules of origin. The Bureau of Economic Analysis reports the domestic content share of US motor vehicle purchases (by value) has hovered around 55â€�60% in recent years.¹⁴

In April 2025, a 25% tariff on vehicles was introduced, which did not fully exempt Mexico or Canada. One analysis shows this will increase the cost of a pickup truck by $5000-$8500.¹⁵ That is before docking fees that could go into effect later this year at US ports.¹⁶

Contractors might delay replacing old vehicles, invest more in maintenance of aging trucks or attempt to pass on higher costs to project owners. Some could shift toward buying used vehicles domestically to avoid tariffs on new vehicles, pushing up those prices. Used and new vehicle prices often move in tandem with each other. That is in addition to higher maintenance and insurance costs associated with the price increases. This is how tariffs can cascade through the economy and show up in inflation measures.

In prior and recent episodes, some builders rushed shipments to arrive before tariff-effective dates (front-loading inventory), while others sought alternate suppliers in countries not subject to tariffs. However, such changes often incurred retooling and recertification costs (e.g. getting a new electrical component approved).

Many contractors included escalation clauses in contracts to pass through unforeseen tariff-related cost increases.¹⁸ Bids for materials that used to be valid for 60-90 days are now only valid for 15-30 days, reflecting volatile prices.

Those strategic adjustments helped some firms cope, but not without friction; shorter bid windows and price-contingency clauses can strain relationships with buyers and introduce uncertainty in project budgeting. The construction industry learned from the episodes to be cautious; sudden cost inflation can erode years of careful planning.

Together, trade and immigration policies are shaping the cost, pace and capacity of US construction, placing the industry squarely in policy crosshairs. Global supply chains and commodity markets make construction highly sensitive to tariffs. Shifts in both policies will boost the costs of construction projects and force some projects to be shelved entirely by raising input costs, narrowing profit margins, triggering delays and threatening affordability, especially in housing. Immigration slowdowns risk deepening labor shortages, delaying projects and fueling wage inflation. Together, escalating tariffs and reduced immigration could drag on construction productivity and exacerbate the weakness we are expecting in the overall economy in response to higher tariffs.