Why Tariffs Could ‘Break’ the Construction Industry

The U.S. construction industry is barreling toward a crisis that could cripple growth for a decade or more. President Trump’s newly imposed tariffs may be the tipping point that transforms today’s slow-burning struggle for the industry into a full-scale breakdown. The danger is not theoretical. The cracks are already forming.

Even before the imposition of these unsettling tariffs, the construction industry was reeling from a toxic combination of high interest rates, inflation, skilled labor shortages and persistent supply chain disruptions. Now, with broad new tariffs in place, the storm has intensified, threatening widespread project delays, skyrocketing costs and a long-term freeze in lending as well as critical investment. These factors also threaten the much-needed trillion-dollar infrastructure spending bill authorized by the U.S. Congress.

READ ALSO: Pre-Tariffs, Construction Cost Hikes Ease

What happens if the industry crosses this tipping point?

If this tipping point is breached, we may witness a full-scale construction contraction with the industry losing a significant number of both the skilled and unskilled workers who form nearly 5 percent of our economy. This will impact projects needed by the U.S. for new schools, leave new research facilities unbuilt, halt projects mid-stream, bankrupt contractors and indefinitely defer hundreds of billions of dollars of infrastructure projects funded by the U.S. Congress.

By the end of April 2025, the U.S. dollar had sunk to a three-year low as investors appear to be buying anything that isn’t American. Experts on the national and global economy predict a 60 percent chance of a recession this year. JPMorgan concurs with those odds. Many investors have sent U.S. stocks into near-bear market territory. According to the International Monetary Fund report of late April, President Trump’s trade war is expected to slow economic growth across the globe this year.

Although the U.S. is probably not in a recession today, it’s looking inevitable that it will be soon unless the White House dramatically shifts its position on trade. As with every prior recession, the construction industry will see a massive contraction of new business and a consequent reduction in the number of workers in this high-paying industry.

Construction momentum upended

There are currently five forces converging to cripple construction momentum:

Labor shortages exacerbated by immigration crackdowns: The construction industry must attract 439,000 workers in 2025, according to Associated Builders and Contractors, or risk facing a shortfall that could exceed 740,000 by year-end due to stepped-up deportation policies. Immigrants make up nearly 40 percent of the construction workforce in major states like Texas, California and Florida. With ICE enforcement ramping up, as many as 15 percent of these workers could be forced out, threatening project timelines and productivity.

Supply chain disruptions still reverberating: COVID-era supply chain shocks still haven’t fully subsided. Freight costs are volatile, and delivery timelines for key materials remain unpredictable. The new tariffs worsen this instability: 10 percent baseline tariffs across all imports; 145 percent on Chinese goods; and 20 percent on EU products. On job sites, delays and cost overruns are already being felt.

Persistently high interest rates: At 5.25 percent, the federal funds rate sits at a 23-year high. Financing costs for developers are crushing. Even major manufacturing startups have pulled the plug on new projects, citing diminished ROI and tighter lending standards.

Soaring material costs: Construction inputs are 41 percent higher than pre-pandemic levels. Since December 2020, material prices have surged 34 percent, with a 9 percent annualized jump in early 2025 alone. Canadian lumber—already facing a 14.5 percent tariff—may soon see combined tariffs of up to 60 percent, threatening affordability in housing construction.

Rising home construction costs undermine affordability: The average cost to build a new single-family home has reached $422,000. Tariffs could tack on an additional $17,000 to $22,000. Meanwhile, the median U.S. home price stands at $385,000. Builders now face a troubling question: Can they build starter homes profitably at all?  

Tariffs hit the industry where it hurts. Here’s how key materials are impacted:

Steel and aluminum: Importers have been paying 25 percent tariffs since March 2025. These materials are critical for commercial and industrial projects, particularly manufacturing facilities—which the administration claims to prioritize.

Softwood lumber: Of the $8.2 billion in sawmill and wood product imports in 2024, 72 percent came from Canada. Tariffs on these materials threaten residential construction in particular.

Gypsum and lime: 74 percent of the $481 million worth of these materials imported in 2024 came from Mexico. They are essential for drywall and finishing work and tariffs on them would compound interior build-out costs. Concrete prices have already jumped 8 percent year-over-year.

Appliances and fixtures: Household appliance prices are expected to rise by as much as 20 percent  

What happens if we cross this tipping point?

If these forces continue unchecked, the construction industry could face a cascade of halted projects, bankruptcies and infrastructure delays. Lenders are already tightening their purse strings. Developers are pausing new starts. Investors are retreating.

The big risk? A chilling effect that spreads through the economy. Construction accounts for 4.1 percent of U.S. GDP. When it slows, so does everything from manufacturing to transportation to local tax revenues.

A building boom that never happens

Trump’s vision of a domestic manufacturing boom runs into a brutal reality of the real estate industry. It takes five to 10 years to build large manufacturing facilities when you factor in site acquisition, zoning approvals, environmental assessments and final commissioning.

Moreover, the current climate is scaring off investors. Even if the policies were to change, the damage will linger well into the future by the estimation of experienced players in the real estate and economic world.

We saw this before. In 2018, steel and aluminum tariffs caused 10 percent cost overruns on numerous projects. Lumber tariffs led to shortages and record-high prices. That history is repeating itself today—only worse.

Even if the currently imposed tariffs are reduced or suspended, economists and foreign policy experts agree that the uncertainty created by President Trump’s trade manipulations has created doubt and fear as to the stability of U.S. foreign trade policy. Moreover, the new tariffs have raised the risk of a recession and shattered longstanding political and economic alliances that have provided a largely stable business environment in the post-World War II global community.

The fear has already begun to develop that Trump’s policies to remedy the problems of international trade could be seen as more harmful than the maladies he envisioned when he set the new round of tariffs to cure.

FUD: Fear, uncertainty, doubt in the financing world

Large construction projects—especially those costing $400 million or more—rely on long-term financial forecasting. Tariff volatility introduces uncertainty that lenders and investors find intolerable. Projects planned for years into the future are now at risk of indefinite postponement or outright cancellation. How can company executives start a major construction project of reshoring their manufacturing facilities from Asia to North America while subject to the President deciding sometime later this year to modify or reverse global tariffs?

As infrastructure funding remains in political limbo and rising construction costs threaten to derail budgets, immigration crackdowns may prove the final blow for labor-reliant timelines. The convergence of all these issues in 2025 means that unless dramatic course corrections are made, the long-hoped-for construction boom may remain just that—a hope. While America continues suffering the consequences for years or even decades to come.

Barry B. LePatner, Esq., is the founder of LePatner & Associates LLP. He has been identified by Governing magazine as “the guru of construction reform in America today.” He is a prominent author and advisor on business and legal issues affecting the real estate, design and construction industries.

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