In an effort to “reshore” and revitalise US manufacturing, Donald Trump’s second administration marks a decisive shift towards economic decoupling through its drastic tariff measures. Threatening not only a return to protectionism, but also the reordering of the global economic order, Trump’s tariffs have weaponised the United States’ economic power and global influence, providing numerous structural challenges for the construction industry.
As seen historically, the imposition of high tariffs under the US’s Smoot-Hawley Act of 1930 generated negative impacts such as raised input costs, retaliatory behaviour from trading partners and reduced economic output. While the far-reaching implications of Trump’s tariffs upon the construction sector are yet to be fully conceptualised, GlobalData’s latest forecast for global construction output in 2025 of 2.3% remains more conservative than previous forecasts of 2.8%, primarily due to US tariff policies.
Go deeper with GlobalData
Firstly, tariffs play a central role in fuelling a surge in the costs of building materials. Moving beyond the universal 10% tariff levied on “Liberation Day” (2 April 2025), strategic sectoral tariffs have been imposed. Targeting critical construction materials, the US placed 25% tariffs on all aluminum derivatives and steel imports from 12 March 2025. Moreover, from 7 April, Canadian softwood lumber imports into the US faced a tariff rate of 14.54%. While the US administration’s attempt to impose an additional 25% tariff, which would have brought the effective tariff rate on lumber to 39.5%, has not been enacted, it is still anticipated that the tariff rate will increase to 34.45% by the end of Q3 2025. Posing a large shock for supply chains, these tariffs will generate a huge rise in input costs of various imported building materials for US buyers, impacting construction output in the short and medium term.
From a geopolitical perspective, the tariffs are “handing Asia to China”
Given that 50% of American demand for aluminium is satisfied through imports, this highlights a rise in supply chain costs, impacting the US construction market. This will delay the completion of various construction projects, particularly those based upon variable-rate contracts. This is because the elevated material prices are anticipated to be passed on to consumers, thereby reducing the affordability of current projects. More specifically, for projects under fixed-price contracts, as the burden of price increases sits with contractors, the tariff policy may exacerbate project delays alongside the commencement of new construction projects. Similarly, for infrastructure and energy projects which tend to have a price adjustment mechanism in their contract to respond to supply chain cost changes, this may reduce the capacity of businesses to forward plan future projects.
Of equal importance is the role Trump’s tariffs will have in accelerating the reorganisation of global supply chains, facilitating trade diversification. While some traditional US allies are well-positioned to negotiate with Washington in pursuit of favourable terms, other nations will be forced to redirect trade flows and find alternative suppliers of steel and aluminium. Overall, this will lead to the formalisation of new trading arrangements, excluding the United States. For instance, tariffs on Asian nations such as Japan, Vietnam and South Korea are substantially higher relative to European and South American nations. Consequently, from a geopolitical perspective, Trump’s tariffs are “handing Asia to China”.
Uncertainty is exacerbated by retaliatory measures
On the other hand, given that China faces the most extreme tariffs imposed by the US, reaching a rate of 145% on most Chinese goods, this may lead to a reduction in capital inflows as businesses may opt to redirect their investments away from China to consider alternative destinations with favourable US trade conditions. For instance, Brazil’s economy could stand to benefit from receiving the Trump’s administration’s minimum reciprocal tariff of just 10%. This rate is lower than that of its regional neighbours, which could provide Brazil with a strategic competitive advantage, providing contractors and manufacturers with better access to the US market, increasing capital inflows into Brazil.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataUncertainty is exacerbated not only due to the changeable and unpredictable nature of Trump’s tariff policies but also targeted retaliatory measures. This enhances the risk of price fluctuations alongside potential supply chain delays and inefficiencies. Indeed, within the global supply chain, tariffs are anticipated to continue to hamper the accuracy of demand forecasting and inventory planning. This will increasingly drive companies to either cancel or pause orders. Moreover, supply chain disruptions can be observed through rerouting trade flows to avoid impending tariffs. Moreover, China’s comparative advantage in critical rare earth minerals may translate into China “weaponising” its supply chain dominance through the implementation of non-tariff measures. Beijing notes tighter export controls will cover critical minerals such as tungsten, tellurium, bismuth, molybdenum, and indium. Arguably, escalating retaliatory responses paired with the ever-changing nature of tariffs remain monumental in hindering investor confidence within the construction sector globally.
Higher interest rates will reduce the viability of projects
If the US-China trade war intensifies and imports become more expensive, this poses deleterious consequences, particularly if tariffs are inflationary. Tariffs often induce inflation since they increase the cost of imported goods, which incentivises businesses to pass these higher costs onto their consumer through higher prices. Specifically, in this case, tariffs have been applied to numerous goods, indicating there will be an upward pressure on general prices nationally. This will have implications for monetary policy, and interest rate changes may further dampen activity within the construction sector. This is because in response to inflationary pressures, higher interest rates would be anticipated to make borrowing more expensive, effectively reducing consumption and investment to bring inflation under control. Higher interest rates coupled with an increase in production costs will reduce the viability of projects for contractors, potentially increasing the proportion of projects being cancelled or watered down.
Trump’s tariffs present a plethora of structural challenges for global supply chains and consequently for the construction industry. The long-term viability of this extremist mercantilist economic model is to be heavily questioned; it remains an unsustainable pathway long-term for the US economy and global markets. Moreover, substantial divergence of opinions on tariffs in Washington’s administration will further hinder the long-term sustainability of tariffs. Overall, in a globalised era, where supply chains are heavily interconnected, there is a strong case to argue that US tariffs may have paved the way for future negotiations, where the US is placed in a position of bargaining power to dictate new favourable trade agreements, thus minimising the long-term impact of tariffs on global supply chains.
