The impact of tariffs on the U.S. construction industry

The whole world of construction is reeling from the fact the Donald Trump is imposing tariffs, but could he be damaging his own industry far more than those in other countries? The recent announcement from the Portland Cement Association (PCA) regarding the Trump Administration's 25% tariffs on cement imported from Canada and Mexico has sent shockwaves throughout the U.S. construction industry – and this is just the beginning, writes John Ridgeway.

Cement is the foundation - literally and figuratively - of the construction industry. From roads and bridges, to skyscrapers and residential homes, cement is an essential component of the modern built environment. The U.S. imports nearly 27% of its cement from Canada and Mexico, accounting for 7% of total consumption. Any disruption in this supply chain will not only drive-up construction costs, but could also delay infrastructure projects, weaken competitiveness and create long-term economic challenges.

The U.S. construction industry is heavily reliant on cement and concrete. In 2022 alone, the U.S. produced approximately 92 million metric tons of cement, yet domestic production still falls short of meeting demand. Cement is used in almost every infrastructure project, from highways and bridges to airports and public transit systems. The Biden Administration’s infrastructure bill, which included over $1 trillion in spending, depended heavily on a stable supply of affordable cement to meet project goals.

Concrete, which is made from cement, is essential for residential and commercial buildings, including foundations, structural walls and flooring. The oil and gas industry relies on cement for well casings, pipeline stabilization, and offshore drilling platforms and any disruption to the cement supply chain could delay these critical projects and lead to higher costs - costs that will eventually be passed on to consumers and taxpayers.

How tariffs will disrupt the U.S. cement supply chain

The Trump Administration’s decision to impose a 25% tariff on Canadian and Mexican cement imports will have immediate and long-term effects on the U.S. construction industry. Tariffs act as a tax on imported goods, which means that cement imported from Canada and Mexico will become significantly more expensive overnight.

This increase will mean higher costs for roads, bridges, and public buildings. Higher material costs will translate into higher leasing and purchase prices for office buildings, retail spaces and warehouses. Increased construction costs could also lead to higher home prices and exacerbate the already strained housing affordability crisis.

Canada and Mexico provide consistent and reliable access to cement. If imports are reduced due to higher costs, the U.S. will need to either increase domestic production or find alternative sources of cement from overseas. Domestic production is already operating at near capacity and expanding production will take time and significant investment. Alternative imports from countries like China or Turkey may also be more expensive due to transportation costs and inconsistent supply chains.

To make matters worse, the geographic distribution of cement imports also complicates the issue. Canadian imports primarily enter through New York (28%), Washington (14%) and New England (11%). Mexican imports are concentrated in southern states like Texas, which relies heavily on Mexican cement for its construction boom. Midwestern states like Montana and North Dakota also depend on Canadian cement for infrastructure projects and oil and gas operations. All this means that tariffs could create localised supply shortages and uneven price increases, with some states suffering more than others.

Cement is not the only construction material facing the pressure of new tariffs. Other essential building materials - such as steel, timber, aluminium and glass - are also caught in the crossfire of protectionist trade policies.

Steel and aluminium

The Trump Administration previously imposed tariffs on steel and aluminium imports, which increased costs for contractors and developers. Steel and aluminium are essential for structural components, roofing, HVAC systems and interior finishes. Higher steel costs raised construction expenses for large-scale infrastructure projects. The cost of aluminium-based materials, such as window frames and curtain walls, also increased.

Tariffs on Canadian softwood timber have already caused significant price volatility in the U.S. housing market. Timber prices soared to record highs in 2021 due to supply shortages and increased demand during the COVID-19 pandemic. Additional tariffs could further destabilise the market.

Imported glass and plastic components - used in windows, facades and plumbing - are also at risk. Tariffs on Chinese goods have already affected the cost of these materials, contributing to higher overall construction costs.

The broader economic impact

The effects of higher material costs and supply chain disruption will ripple across the broader economy. Higher construction costs will contribute to inflationary pressures, especially in the housing market. Increased home prices and rental costs will put additional strain on household budgets.

Higher costs and project delays could lead to a slowdown in construction activity. Developers, for example, may postpone or cancel projects due to increased costs. Fewer new housing starts could exacerbate the housing supply shortage and infrastructure projects might face delays or require additional funding. Furthermore, the construction industry employs over 7.5 million workers in the U.S. A slowdown in activity could lead to layoffs and job losses across the sector.

The oil and gas sector relies heavily on cement and concrete. Tariffs could increase production costs, making U.S. energy less competitive on the global market. However, the impact of U.S. tariffs on cement and other building materials will not be confined to American borders.

Both Canada and Mexico depend on the U.S. construction market for cement exports. Tariffs could lead to excess supply in their domestic markets, creating downward pressure on prices and impacting domestic manufacturers. Canadian producers could also face plant closures or layoffs. In addition, Mexican cement manufacturers may seek alternative export markets, potentially increasing competition in Latin America and Europe.

That said, European and Asian cement manufacturers may see new opportunities to export to the U.S. However, longer shipping distances will increase costs and complicate supply chain reliability. European manufacturers, already facing environmental regulations, may also struggle to scale up production to meet U.S. demand.

Countries in South America and Africa could see increased demand for their cement and construction materials. However, infrastructure limitations and political instability may hinder their ability to capitalise on this opportunity.

A path forward

While the Trump Administration’s trade policies aim to protect American manufacturing, the construction industry stands at a crossroads. A balanced approach to trade policy - one that protects domestic producers while ensuring stable access to essential building materials - will be crucial.

The U.S. government could create exemptions for Canadian and Mexican cement to maintain stable supply. Expanding domestic cement production capacity could also reduce reliance on imports over time. Renegotiating trade agreements with Canada and Mexico could preserve supply chains while addressing national security concerns. Alternatively, expanding import sources beyond Canada and Mexico could stabilise supply and mitigate future trade disruptions.

We can see therefore, that the Trump Administration's tariffs on Canadian and Mexican cement imports present a complex challenge for the U.S. construction industry. Higher costs, supply chain disruptions and inflationary pressures threaten to derail infrastructure projects and housing development. While the U.S. government’s goals of strengthening domestic manufacturing and national security might be considered valid, a more nuanced and targeted trade policy will be essential to protect the construction industry and maintain economic stability.

The global ripple effect of these tariffs will be felt far beyond U.S. borders, underscoring the interconnected nature of modern construction markets. Balancing protectionism with economic pragmatism will be the key to ensuring that America’s construction sector remains strong, competitive, and resilient in the face of evolving trade dynamics.