JTM Newsletter issue 3: Tariff updates

What is a Tariff?

The hot topic of the year in the construction industry is tariffs. But what exactly is a tariff? A tariff is an import tax applied to goods shipped from abroad, paid at the time of customs clearance.

“The tariff, along with other assessments, is collected at the time of customs clearance in the foreign port. Tariffs and taxes increase the cost of your product to the foreign buyer and may affect your competitiveness in the market.” - US Trade Department

These are wholesale taxes and are generally not paid by general contractors, trade partners, or even their primary suppliers. It’s also important to note that tariff rates can differ between fabricated items and raw materials.

Why are Tariffs Enforced?

Also referred to as “duties,” tariffs serve several purposes:

• Revenue Generation for the U.S. Government
• Leveling the Playing Field: They encourage growth in domestic material extraction and fabrication by making foreign goods less competitive. This is particularly effective when U.S. producers have unused capacity ready to scale up in the short term.
• Geopolitical Negotiation Tactics used by nations to address trade imbalances and other global economic concerns.

Impacts:

• Raw Materials—whether in their base form or as fabricated products—are just one of many components required to complete a construction project. Other key factors include shop fabrication, field labor, engineering, management, insurance, inspections, and shipping. It’s important to remember that tariff costs may not have a major impact on the overall project budget, especially if the project is well-designed and efficiently managed. At JTM, we work closely with our trade partners daily to stay updated on material pricing and procurement timelines.
• Duties represent an added cost to the materials and equipment necessary to construct buildings. However, the actual impact of tariffs depends on the project type and current market conditions. In some cases, foreign producers may choose to reduce their sales prices to partially offset imposed duties if they can do so. Conversely, domestic producers may raise prices due to decreased competition.
• While many building materials are typically fabricated domestically, macroeconomic factors can still lead to price increases. One clear example in construction is tube steel. Most steel used in construction is recycled and forged or milled within the U.S. However, many other steel items—such as automobile and appliance parts—are imported, which has resulted in increased costs for these materials.
• The biggest challenge currently is cost volatility. Since January 27, 2025, there have been 13 different tariff announcements, adjustments, or postponements. This level of uncertainty makes it difficult for vendors to provide consistent pricing. Increased risk typically leads to higher prices and shorter durations for price guarantees in the near term. Once trade agreements are finalized between nations, suppliers can plan and adjust accordingly.

Action Items

For Existing Projects:

• Owners, general contractors, and subcontractors should regularly check the procurement status of materials and equipment. In addition to increased costs, there may be added pressure on domestically sourced materials as projects shift sourcing strategies.
• There must be a contract review for provisions so that all parties understand the cost exposure risk.

Projects in Procurement:

• Ensure you have multiple options for materials and equipment. Whenever possible, include both onshore sources and more than one offshore option for major systems such as waterproofing, window walls, VRF systems, and elevators.
• Use a staged buyout to maximize the reward and reduce the temporary price hike risk. It should be noted that general prices will go up long-term.
• Collaborate with trade partners and vendors regularly to break down costs and identify which system components are directly impacted by tariffs. In most cases, only a few components of each system should be directly affected.

Projects in the Design Phase:

• Review budget pricing for key materials such as partitions, mechanical equipment, countertops, and stone. It is advisable to include a risk allowance above typical material escalation. While long-term costs may stabilize closer to the historical average of ±3% per year, in the short term, it is best to be conservative in estimating these costs. JTM can assist you in reviewing and analyzing specific line items to mitigate risk.
• The unused escalation can be returned to the project savings or be used for additional scope.

Works Cited:

• Import Tariffs & Fees Overview and resources. (n.d.). International Trade Administration | Trade.gov. https://www.trade.gov/import-tariffs-fees-overview-and-resources
• Tax Foundation. (n.d.). Page not found | Tax Foundation. https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/%20%20%20https:/www.dailymetalprice.com/metalpricecharts.php?c=al&u=lb&d=240
• Holaday Parks (Personal Interview)
• Prime Electric (Personal Interview)
• Cives Steel (Personal Interview)
• Producer price Index by commodity: Metals and metal products: open metal flooring, grating and studs. (2025, March 13). https://fred.stlouisfed.org/series/WPU10740814