The tariff squeeze is real and it’s hitting construction hard

The construction industry is facing a wave of rising costs and project uncertainty caused by aggressive tariff policies that target core building materials, such as steel, aluminum, copper, and lumber. These tariffs are triggering a chain reaction that’s reverberating across residential, commercial, and industrial sectors.

As material costs climb, the price per square foot of construction is rising fast, making it harder for contractors and developers to stick to budgets, plan purchases, and finish projects smoothly. Building anything, from a house to a hospital, is costing more money than it did last year.

How Are Trump’s Tariffs Affecting the Construction Industry?

With the Commerce Department’s recent announcements and pending Section 232 investigations into timber and lumber, contractors, subcontractors, and developers must prepare for sustained volatility and rising costs.

Earlier this year, the U.S. government added new tariffs on a wide range of imported goods, starting with a 10% global baseline increase in April, followed by a sharp hike to 50% on steel and aluminum in June. Then in August, 407 derivative products made from these metals were added. These include tools, building parts, machinery, HVAC systems, transformers, and metal framing. Click here for a complete list of the 407 product categories.

Also in August, a new Section 232 action went into effect that imposes 50% tariffs on semi-finished copper and copper-intensive derivative products, which will increase costs for electrical gear, HVAC/plumbing tubing, and connectors.

Meanwhile, lumber is under scrutiny. A Section 232 investigation launched in March is expected to conclude within several months, possibly by year-end, potentially triggering new tariffs on timber and wood-based goods. Separately, countervailing duties on Canadian softwood lumber are effective now, ranging 12.12%–16.82%. Since Canada supplies nearly 80% of U.S. lumber imports, any changes in trade have a big impact on the construction industry.

What Does This Mean for Builders?

Builders across the country are seeing project costs rise, driven largely by tariffs on commonly used building materials. These cost pressures are leading to delays, rebids, and even cancellations, especially in residential and light-commercial sectors, where margins are tighter.

To compensate, builders are engaging in more frequent value engineering (VE) cycles. This often involves switching to more affordable materials or reconfiguring building layouts to reduce expenses.

What Should Contractors and Developers Do?

While builders manage on-the-ground costs, contractors and developers must protect project viability through smart planning and contract management. Key actions include:

• Monitoring updates from the Bureau of Industry and Security, which publishes lists of tariff-impacted products.
• Using contract mechanisms like price escalation clauses to adjust for tariff-driven cost increases and higher Guaranteed Maximum Prices (GMPs) to avoid out-of-pocket overruns.
• Updating bids and budgets based on current material costs and market trends.

Strategic Relief from the One Big Beautiful Bill Act

The recently passed One Big Beautiful Bill Act (OBBBA) offers construction companies several tools and a timely counterbalance to deal with rising costs. For contractors, developers, and specialty trades, the bill introduces several tax breaks and incentives to improve cash flow, reduce tax burdens, and support long-term investment in equipment, innovation, and infrastructure.

Key provisions that affect the construction industry include:

100% Bonus Depreciation: Builders can now fully expense qualified machinery, vehicles, and tools in the year of purchase.

Expanded Section 179 Expensing: Small and mid-sized companies can now deduct up to $2.5 million for expenses like software and equipment.

Qualified Production Property Deduction: If you’re building a qualified factory or production facility, you can write off the full cost if construction begins between January 19, 2025, and December 31, 2028.

Permanent 199A Deduction: If you’re eligible and your company is a pass-through entity (like an LLC or partnership), you may claim a 20% deduction on qualified business income.

Expanded Exemption for Residential Construction Contracts: Builders of qualifying projects, including apartments, senior housing, and similar developments, can use a simplified accounting method that helps defer taxes and improve cash flow.

Section 174 R&E Expensing: If your company spends money on domestic research and experimentation (R&E), you may be able to write off those costs right away.

Section 163(j) Interest Deductibility: Many companies can now deduct more interest on loans, which may influence lease-versus-buy decisions and capital structuring strategies.

For a more in-depth look at the what the OBBBA means for builders and contractors, check out our related article.

We Can Help

At Elliott Davis, we support construction clients with:

• Margin protection and cost modeling to understand how tariffs flow through the supply chain and impact your bottom line.
• Resilient supply chain strategy to explore sourcing alternatives and inventory positioning.
• Experienced tax planning to guide clients through multi-state sales and use tax implications.

Contact us today to start the conversation.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.