The Construction Counselor

Widespread uncertainty within the construction industry has arisen due to President Trump’s promises to impose tariffs, both before and after his inauguration. If implemented, new tariffs could mean price increases in construction materials, ranging from steel and iron to lumber, electronical components and many others.

The first Trump Administration introduced Section 232 tariffs on all steel (25%) and aluminum (10%) imports and Section 301 tariffs targeting Chinese goods, covering a wide range of imports totaling approximately $370 billion. For context, Section 232 of the Trade Expansion Act of 1962 empowers the President to impose tariffs on certain goods if they threaten national security. Section 301 tariffs address unfair trade practices, such as intellectual property theft.

Regarding the second Trump Administration’s potential 2025 tariffs, some industry experts have reported that products imported from China, including lower-cost commodity items such as certain metals, coatings, plumbing components and HVAC parts, could see significant price increases.

China is not the only tariff target. The administration may also plan to impose across-the-board tariffs of 25% on goods coming from Mexico and Canada. This is not the first time Trump has done so. In March 2018, he imposed tariffs on steel (25%) and aluminum (10%) from most countries. In June 2018, the tariffs were extended to the European Union, Canada and Mexico. Many believe the imposition of the tariffs is a negotiating tactic to change policies in Mexico and Canada relating to border security, as well as economic policies, including shifting more manufacturing back to the United States. The United States-Mexico-Canada Free Trade Agreement (USMCA) went into effect on July 1, 2020, during the previous Trump administration. When negotiating the USMCA, the Trump administration insisted on including a sunset/review clause in the treaty, allowing the United States to either further negotiate provisions, or end the treaty altogether. The review clause provides that the parties will review the treaty prior to the deadline, and on July 1, 2026, the United States, Mexico and Canada will confirm in writing whether to continue the agreement. If one or more of the three parties decide not to renew the agreement, it will come to an end, at least as a trilateral agreement (the parties could still enter into bilateral agreements with one another). Trump has promised to raise the tariffs as soon as February 1, 2025, giving all trade partners an opportunity to propose or consent to concessions requested by the new administration. Raising tariffs could violate the United States’ commitments not only under the USMCA, but also under the World Trade Organization (WTO) agreement. In the past, Trump has threatened to pull out of the WTO, which has 166 members globally that represent more than 98% of global trade and global GDP.

“Section 301” duties imposed by Presidential Proclamation under the Trade Act of 1974 have been used to raise tariffs against China imports. Section 301 empowers the President through the Office of the United States Trade Representative (USTR) to investigate any act, policy or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable or discriminatory, and that burdens or restricts U.S. commerce. There are other Sections of the Trade Act that have been used to impose tariffs as well, but it is not clear if they would apply to imports from Canada and Mexico.

The Trump administration is also proposing to implement the tariffs by executive order, but it is important to note that the Constitution vests Congress with the authority to impose tariffs and regulate trade with foreign nations, so the administration will need Congress to help him implement the tariffs. Given that the Republican Party controls both the House and the Senate, getting agreement from Congress on tariffs may not be out of the question, but it is not guaranteed. Still, prudent business practice dictates that importers and purchasers of foreign goods subject to the proposed tariffs implement measures to secure their supply chains.

While the construction industry braces for impact, some construction companies are implementing strategies to help ease their uncertainty. When possible, buying materials in advance and in bulk is a useful strategy to stay ahead of increased costs. Others are ensuring they have alternate sources for materials, emphasizing domestically sourced materials, which should be less vulnerable to across-the-board tariffs. Companies need to review their upcoming purchase orders and contracts, both upstream and downstream, and, if necessary, update  pricing and other key provisions, and negotiate terms that make sense for everyone in this uncertain market. For previously executed purchase orders and contracts, companies are reviewing the contractual provisions relating to tariffs, changes in laws, and force majeure, to determine if they can pass along higher costs upstream should tariffs mean the cost of their materials go up.

The industry will continue to keep a close eye on the administration’s actions over the upcoming weeks and months in this regard, and further updates will be provided.

Jodie McDougal and Mike Currie are attorneys at Fredrikson, handling litigation and transactional matters for their construction-industry clients, including contractors, architects, engineers, owners and others. Pat Kelly represents clients on a broad range of international business matters, including regarding tariffs, exports and imports. We can help you to review your agreements and advise you on changes and strategies to help mitigate the effects of the tariffs. If you have questions, contact Jodie McDougal, Pat Kelly and Mike Currie.