Construction stakeholders brace for tariffs’ impacts

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President Donald Trump may think tariffs is “a beautiful word,” as he told Congress recently, but construction executives are preparing for higher prices, potential supply chain disruptions, and ongoing trade uncertainty.

Changes involving prices and materials may have the most impact on complex engineered equipment used in heating and cooling, elevators and other high-tech building systems, construction experts said.

“We see concerns that tariffs will negatively impact demand and therefore the production of goods,” said Serena Crivellaro, managing director of KPMG’s engineering and construction team. “There’s very little that’s actually 100 percent American-made and would be fully exempt from the tariffs. So, the impacts of these tariffs could be really wide-sweeping.”

Crivellaro’s comments came during a market update call hosted by construction giant Skanska USA on Tuesday, the day before Trump imposed 25 percent tariffs on all steel and aluminum imports to the U.S.

On Wednesday, the Trump administration apparently was poised to back off a threat to double those tariffs after Ontario Premier Doug Ford climbed down on imposing electricity tariffs, The Associated Press reported. Still, the 25 percent tariffs took effect.

The aluminum and steel tariffs add to a raft of such levies Trump has introduced since January on both specific goods and nations, including America’s largest trading partners. Many of those nations have retaliated with tariffs of their own on U.S. goods. Trump has also delayed or rescinded tariffs in response to other nations’ actions.

More tariffs — including 25 percent tariffs on Mexico and Canada and reciprocal tariffs on the European Union — are expected to take effect April 2.

The on-again, off-again whiplash of tariff threats causes its own problems, construction executives said.

“It’s really the uncertainty of the tariffs that might actually be worse than the tariffs themselves,” said Tom Park, Skanska’s vice president of strategic supply chain.

Tariff threats make it difficult for businesses to plan, Crivellaro said.

Uncertainty “is causing almost a tax on the economy,” she said. “Businesses pause hiring, they pause investment plans; consumers pause on the big-ticket purchases.”

Tariffs can also compound themselves when materials cross the border multiple times or use components taxed both for their national origin and their type.

Park gave the example of a chiller that might have steel fabricated in the U.S., wire from China, pipe from India, a harness from Mexico, motors from Germany, coil steel from China, raw steel from China and Canada, copper from Peru, fan coils from Mexico, electronics from Japan, Korea, Canada and the U.S., paint from the U.S., and a compressor from Mexico and the U.S.

“We do really have a global supply chain when it comes to this type of equipment,” he said.

Aluminum and steel tariffs have already risen in anticipation of the new tariffs this week, Park said. One bit of good news: Supply chain disruptions have been few, and lead times have so far remained steady.

Steve Stouthamer, Skanska’s executive vice president of project planning, said he’d taken it upon himself to stay abreast of tariff news for the good of his preconstruction team.

“I’d never thought I’d have to be a tariff expert, and I still don’t consider myself one,” he said.

Skanska sought to estimate tariffs’ impacts on large projects. The contractor compared 12 full-service patient care facility projects across the U.S. For a $375 million project, Skanska estimated the impact of steel and aluminum tariffs at approximately $6.2 million, or 1 percent to 2 percent of project costs. If the April 2 tariffs take effect, total tariff cost increases could be 4 percent to 5 percent, Stouthamer said.

Other administrative actions can be expected to weigh on growth, Crivellaro said, including deep cuts to federal agencies or eliminating them entirely.

“That’s not good news for growth either,” Crivellaro said. “If the government was buying pencils, let’s say, and now that agency doesn’t exist anymore, those pencils are not bought. That actually does remove a certain number of pencils from the (gross domestic product). It reduces the output of that pencil factory, the number of people employed by that.”

Economists and business executives have long described tariffs as taxes on imported goods that are ultimately paid by consumers. Adam Smith, in his landmark economic treatise “The Wealth of Nations,” first published in 1776, wrote that “every such law … imposes a real tax upon the whole country.”

But Trump has been skeptical of free trade since long before his first presidency. In a 1990 interview with Playboy magazine, he blasted free trade, saying of trade partners, “They have totally outsmarted the American politician; they have no respect for us, because they’re getting a free ride.”

He told Congress much the same thing in his March 4 address, some 35 years later.

“They’re about protecting the soul of our country,” Trump said. “Tariffs are about making America rich again and making America great again. And it’s happening. And it will happen rather quickly. There’ll be a little disturbance, but we’re okay with that. It won’t be much.”