How New Tariffs on Steel and Aluminum Are Reshaping the U.S. Construction Industry

ARTICLE | May 02, 2025

As the United States implements sweeping new tariffs on imported steel and aluminum in 2025, the construction industry is bracing for a period of volatility that could reshape project costs, timelines, and supplier relationships nationwide. The latest policy changes—marked by a 25% tariff on steel and certain steel derivatives, and an increase in aluminum tariffs from 10% to 25%—eliminate longstanding exemptions for key trading partners, including Canada, Mexico, and the European Union. For an industry where material costs account for up to 50% of total project expenditures and supply chains are deeply globalized, these developments present immediate operational challenges and long-term strategic questions.

How Construction Depends on Global Supply Chains

Construction projects in the U.S. are built on a diverse palette of essential materials: steel for structural frameworks, aluminum for facades and HVAC components, lumber for framing, and cement for foundations. According to the U.S. Department of Commerce, more than 30% of the steel used in the United States is imported, with Canada, Mexico, Brazil, South Korea, Japan, and the European Union serving as the primary suppliers. Even with robust domestic production, American mills cannot always meet the demand for specific grades, dimensions, or innovative products required by today’s complex infrastructure and commercial projects. For example, a large hospital or airport terminal may source specialized steel shapes or high-strength aluminum alloys from international mills to meet engineering specifications that domestic producers cannot supply at scale.

Imports are not simply a matter of convenience; they are crucial for bridging gaps in domestic capacity and accessing materials with unique properties. This has allowed U.S. builders to maintain competitive pricing, ensure project quality, and deliver on ambitious timelines. As a result, construction firms have developed supply chains that span continents, relying on trusted relationships with both domestic and foreign suppliers.

Short-Term Substitution Is Not Simple

The sharp increase in tariffs—and the removal of country-specific exemptions—forces construction companies to reconsider their sourcing strategies. In theory, higher import duties could push firms to buy more U.S.-made steel and aluminum. In practice, the transition is fraught with obstacles. Domestic mills often lack the available capacity to absorb a sudden surge in demand. Expanding production requires years of investment, new infrastructure, and the recruitment of skilled workers, all of which make immediate substitution unrealistic. For some specialized materials, there may be no domestic alternative at all.

This reality leaves construction firms exposed to short-term shortages, sharp price increases, and potential project delays. According to the Associated General Contractors of America, material costs for steel and aluminum rose by double digits during the last major tariff cycle, and the risk of a repeat scenario is high as suppliers and distributors adjust to the new rules. Project timelines—already sensitive to supply chain disruptions—could be jeopardized, leading to missed deadlines, contract penalties, and cost overruns. Volatile input prices also make it challenging for contractors to estimate expenses, bid competitively, or commit to new projects with confidence.

Ripple Effects Beyond the Construction Site

The implications of these changes are not limited to the construction sector alone. Higher material costs can translate into more expensive residential and commercial real estate, slower rollout of public infrastructure, and potential job losses for workers in related industries such as manufacturing and logistics. Rising costs for building schools, hospitals, and transportation projects may ultimately be borne by taxpayers and end users, making this a national economic concern.

Adapting to the New Normal: Strategies for Construction Firms

In response to these challenges, construction businesses are rethinking their approach to sourcing and supply chain management. Experts recommend conducting a thorough review of current material dependencies and supplier relationships, especially for projects with long lead times or specialized requirements. Firms should actively seek out alternative suppliers, both at home and abroad, to diversify risk and avoid overreliance on any single source.

Early engagement with suppliers is critical. Companies can negotiate pricing, delivery schedules, and flexible contract terms that account for market volatility. Some firms are joining purchasing consortiums to strengthen their bargaining position or inserting escalation clauses into contracts to address rapid changes in input costs. Where possible, businesses should monitor for regulatory updates regarding potential tariff exclusions, duty drawback programs, or relief through Free Trade Agreements, and be prepared to act quickly if new opportunities emerge.

Investing in supply chain management technology and scenario planning tools can help firms map their exposure, simulate cost impacts, and evaluate alternative procurement strategies. Digital platforms allow contractors to track inventory, assess country-of-origin risks, and model “what-if” scenarios to support data-driven decision-making.

Expert Perspectives and What’s Next

Industry groups such as the Associated General Contractors of America have called on policymakers to consider targeted relief for construction, citing the sector’s vital role in economic growth and infrastructure development. Economists warn that prolonged trade tensions could further destabilize the market, and recommend that businesses remain agile and vigilant as legislative and international negotiations continue. The White House has indicated that additional details and possible processes for product exclusions may be forthcoming, but construction leaders should not count on swift relief.

As the sector navigates this changing landscape, the only certainty is the need for adaptability. Construction businesses that proactively assess risks, strengthen supplier relationships, and invest in strategic planning will be best equipped to weather the storm. For project owners, developers, and the broader economy, the stakes could not be higher. Keeping a close watch on policy developments—and being ready to pivot as new information emerges—will be essential to maintaining project momentum and safeguarding margins in 2025 and beyond.