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The recent wave of tariffs from the United States stacks on a few existing ones, contributing to rising construction input costs.
A considerable amount of uncertainty remains concerning the implementation of tariffs and the future of immigration policy. Even so, there is little doubt that the price shocks of tariffs and labor supply of tighter immigration enforcement will continue to impact the construction sector and the American economy.
The recent wave of tariffs from the United States stacks on a few existing ones, contributing to rising construction input costs. The figure below summarizes the history of relevant tariffs since 2024.
As a result of these tariffs, the average effective tariff rate (as of April 21, 2025) is 28%, the highest it has been since 1901. The largest tariffs by far are on Chinese imports, with an average rate of 124.1%.
Non-reciprocal tariffs are still impacting construction inputs
Although almost all reciprocal tariffs were paused until later this year, the construction industry’s key trading partners still have additional burdens from non-reciprocal tariffs. Section 232 tariffs on steel and aluminum, important inputs to construction, are still in place, as are the IEEPA tariffs on Canada, China, and Mexico. Additionally, China has received further reciprocal tariffs bringing its total tariff to 145%, although effective tariffs rates are somewhat smaller.
| Steel and aluminum tariffs remain despite a pause in reciprocal tariffs. | |||
|---|---|---|---|
| Canada | Mexico | China | |
| Section 301 | 0% | 0% | 20% |
| IEEPA | 25% | 25% | 20% |
| Section 232 | 25% | 25% | 25% |
| Total | 50% | 50% | 65% |
| Source: Holland and Knight | |||
China is the largest supplier of imported goods used in the construction industry, accounting for 19.7% of construction imports. The European Union accounts for 17.5% of the imported goods used in the construction industry, Mexico accounts for 14.3%, and Canada accounts for 11.3%. Eventually, supply chains may shift to account for production within the United States or trading partners not facing these tariffs. Meanwhile, if construction firms are to continue building, they will likely pass along these additional costs to buyers.
Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis, Chmura Economics & Analytics
Imports have an important role in the construction sector
Imports have historically helped to contain construction costs by pushing down total input costs for the industry. Overall, goods input costs to the construction industry have grown by 39% since 2018, including a sharp spike during the COVID-19 pandemic when demand for housing surged. Domestically produced goods input costs have grown by 42% over the same period, while imported inputs to the construction industry have grown by a smaller 27%.
Source: U.S. Bureau of Labor Statistics
Imports accounted for about 12% of the goods used in the construction industry in 2023. The three commodity groups with the largest shares of imports used in construction are
- Electrical equipment/appliance/components
- Fabricated metal products
- Machinery
All three of these imports are directly or indirectly impacted by the 25% Section 232 tariff on steel and aluminum. In addition, China accounts for 29% of all electrical equipment/appliance/components imports, 25% of all fabricated metals products imports, and 13% of all machinery imports—all of which would be subject to the additional tariff on Chinese goods.
Tariffs will add an additional cost burden on construction firms
With the current effective tariff rate, tariffs could add an additional $41.7 billion in costs to the construction industry, Chmura estimates this could amount to a tariff burden of almost $2,000 per unit for new multifamily housing and over $4,500 per unit for new single-family housing. This does not account, however, for firms adapting their supply chains to the new tariff policies.
If fully enacted, tariffs could increase inflation by 3% in the short run according to Yale Budget Lab estimates. This increase in inflation would be a one-time price increase, but consumers will continue to feel pressure as prices return to typical growth at the new higher levels.
Labor shortages will push up wages and costs in the construction sector
While tariffs have been the focus of markets and the news cycle, tighter immigration enforcement is set to put pressure on the construction industry’s labor supply.
The Current Population Survey shows 28.6% of workers employed in the construction industry are immigrants, and 21.0% are non-citizens. As the Trump administration tightens immigration enforcement, these workers may be deported or fear showing up for work, worsening labor shortages and driving up construction wages and building prices. According to the Center for Migration Studies, 54% of foreign-born construction workers are undocumented, putting up to 1.6 million jobs in the construction industry at risk.
The Association of Builders and Contractors (ABC) estimates that the industry will need to hire 439,000 net new workers in 2025 to meet demand, even without accounting for lost undocumented workers due to changes in immigration policy. JobsEQ’s Occupation Gaps analytic estimates that labor shortages in construction trades occupations will continue and become widespread across trades over the next 10 years.
To meet the demand requirements for labor shortages, employers often need to increase wages. As of February 2025, the construction sector is seeing higher year-over-year average hourly earnings increases at 4.3% compared to a 4.0% year-over-year increase for private industry as a whole. The residential building industry, which employs about 12% of workers in the construction sector, has seen average hourly earnings increase considerably more, at 9.5% year-over-year in February 2025. Wage increases from current tighter immigration enforcement could add an additional 0.2 percentage points to total inflation in 2025.
Source: U.S. Bureau of Labor Statistics
Future tariff policy changes can significantly change the picture
The effect of tariffs will depend heavily on the eventual rate(s) set and the time over which they remain active. It takes time for companies to shift supply chains in response to such policies. So in the short-term, the cost of tariffs is likely to be passed on to U.S. consumers. Longer-term, the tariffs may incentivize changes in trading partners or growth of domestic production, assuming materials are available, and costs remain competitive; but those input cost increases will still be priced into the final sale costs. As we move further into the year, we will continue to look for more clarity on the future of tariffs and immigration policy to determine how changes in policy impact the labor market, firms, and growth.