Tariffs and the cost of building: What’s at stake for Canadian construction and infrastructure

Just as the construction industry finally seems to be moving past its post-pandemic supply chain and inflation problems, recent trade developments between the United States and Canada have introduced new uncertainties. A tariff dispute will have significant direct and indirect, immediate and long-term adverse impacts on construction and infrastructure projects across both countries.

Below, we cover the potential impacts of these tariffs, key considerations for industry stakeholders and strategies for navigating this new trade landscape.

Background

President Trump campaigned on a promise of imposing tariffs on U.S. imports. He is marching forward on those promises, despite the adverse impacts on the U.S. and Canadian economies and free trade agreement.

• On February 3, 2025, U.S. President Donald Trump announced the unilateral imposition of tariffs across essentially all Canadian and Mexican goods. Canada and Mexico responded immediately with counter-tariffs, resulting in the United States backing down and postponing their tariffs for a 30-day period. President Trump has since announced that the tariffs will be re-imposed on Canada and Mexico on March 4.
• On February 11, 2025, Trump announced that he would impose a “true 25 per cent tariff on steel and elevate the tariff to 25 per cent on aluminum.” These tariffs are anticipated to come into effect March 12. Note that, unlike in 2018, these tariffs will also apply to “derivative products”, meaning any good that itself includes steel or aluminum is also subject to the tariff.
• On February 13, 2025, Trump announced an intention to impose a sweeping array of, what the President calls, “reciprocal tariffs” on imports from any country he determines has imposed tariffs on U.S. exports, or potentially, other forms of perceived unfair barriers for U.S. exports of goods and services.

The cumulative affects of the tariff and counter-tariff announcements, and other disruptive trade announcements is impossible to determine at this stage since the state of trade affairs remains very much in flux.

However, it is clear that the tariffs and that disruption in trade will have an adverse effect on the market and, in particular, on sensitive industries where there is a high level of cross-border integration, such as construction and infrastructure. The Canadian Home Builders’ Association estimates that Canada imports from the United States include approximately $3.5 billion in glass and glass products, $3.1 billion in major appliances, $2.2 billion in hardware and $1 billion in ceramic tile and products[1]. Many of these imports from the United States incorporate parts and materials that are exported by Canada, and so could be hit twice by tariffs.

Immediate tariff impacts on construction goods and supplies

Direct impacts

Exported Canadian goods. The imposition of tariffs on steel, aluminum or any other goods exported by Canadian businesses in the construction sector will directly impact the industry. The price of those goods will immediately go up for U.S. purchasers and/or importers into the United States of those Canadian goods. Construction projects in the United States will be more costly as a result.

This will also make Canadian exporters less competitive (if they maintain their base pricing) or less profitable (if they lower their base pricing to stay competitive). In either case, this has a direct impact on Canadian manufacturers of construction supplies and, therefore, the Canadian construction industry.

Imported goods. Canada has promised to retaliate with its own tariffs. The Federal government has threatened retaliatory tariffs (surtaxes), and the Provinces have indicated they may impose other economic measures in response to the US tariffs. We do not know the full extent of that response, but any tariff on imported goods or materials used in construction will impact the pricing of Canadian construction projects.

Indirect impacts

The U.S. tariffs will also have significant indirect impacts on the Canadian construction sector. Because these inputs will be subject to the U.S. tariff when imported into the United States, therefore causing price increases of the finished goods into which they are incorporated, any finished goods that are imported into Canada that incorporate parts, materials and other goods that were exported by Canadian manufacturers will see price increases, such as HVAC equipment or construction equipment that incorporate Canadian steel and aluminum. These price increases will occur even absent any retaliatory tariffs imposed by Canada. Anything from household appliances to electrical and mechanical building equipment to structural materials will be more expensive. Projects will cost more because of the U.S. tariffs.

By some estimates, the costs to Canadian residential housing projects could increase by as much as one per cent to four per cent, depending on the supply sources for a particular project. Margins and returns are already a challenge throughout Canada, especially for housing. The tariffs could result in project failures, delays or cancellations.

The U.S. tariffs also apply to “derivative products”. The steel and aluminum that is used or incorporated into any Canadian good exported to the United States will itself be subject to the tariffs. This is not only a significant additional tariff, but it will be a costly, time-consuming administrative burden.

As of the date of the publication of this article, Canada has not yet announced that it will “re-impose” the counter-tariffs that it had ordered on February 4^th. Trade diplomats and politicians are working to avoid all tariffs. If they cannot, we can expect some retaliatory measures. Counter-tariffs have a great deal of popular support among Canadians; however, they will exacerbate the pricing challenges created by President Trump’s tariffs. It is not possible to determine how impactful until Canada’s counter-tariffs are announced.

Long-term tariff impacts on the construction sector

The long-term impacts of the United States tariffs and any ensuing trade war could also be significant and adverse to the construction sector.

Higher costs of goods and materials will require project participants to re-evaluate their budgets. This could result in some projects becoming unaffordable and either suspended or cancelled altogether. This could delay closing our large residential housing projects. It could also delay the delivery of large critical infrastructure which already faces pricing challenges

• Higher input costs could deter investment in infrastructure, reduce the competitiveness of Canadian firms and delay the delivery of critical infrastructure projects.
• Supply chain disruptions could lead to delays in procurement, manufacturing and delivery of key components, further straining project timelines and budgets.
• The threat of tariffs has already impacted the value of the Canadian dollar. This is expected to lead to increased costs for imported materials, equipment and technology, as many are priced in stronger foreign currencies. This can drive up project budgets, strain fixed price contracts and deter foreign investment.

What to do right now

If tariffs, trade disruptions and pricing increases are coming, what can a construction owner, contractor, or trade do?

• Review contract terms. Most construction contracts will have provisions that address how increases in taxes and duties (including tariffs) are to be dealt with. In most cases, this is considered a price risk that the owner carries. That is the case with the industry standard form construction contracts published by the Canadian Construction Documents Committee (“CCDC”), for example, which allows the contractor to increase the contract price (in the case of a stipulated price contract) and pass along the cost of the increase to the owner (in the case of a cost-plus contract).
  
  Contracts for larger construction and infrastructure projects will typically have complex change of law and tax provisions that should be considered. The bottom line is that the contract terms agreed to by the parties will govern.
  
  We have worked with a number of clients to review their contracts and propose specific drafting to address tariffs in a clear manner. We are working on a Building Brief article on “Tariffs and your construction contract.” Sign up to our distribution list to ensure you receive a notice when it is published.

• Force majeure event? A force majeure event is typically described as an event outside of the control of a party that prevents performance of that party’s obligations under a contract. Other than in Québec, force majeure relief is almost entirely contractual and subject to the terms of the parties construction contract. Most contracts do not define force majeure to include price increases regardless of the cause.
  
  Canadian courts have consistently taken the view that higher prices do not prevent a party from performing their obligations—it only makes it more expensive to perform—and so relief is not available. However, the specific terms of the contract will govern.
• Review active procurements. If you are an owner or a governmental authority, you will want to provide clear instructions to bidders about how tariffs are to be addressed in the bid price, actual, threatened or anticipated tariffs. You will want to ensure that all bidders are submitting a bid price that is based on the same, consistent assumptions. You will want to avoid any qualified bid prices or non-compliant bids. 
• Consider alternative suppliers. A reality we are all facing in Canada is that goods coming from the United States that are “US origin” and potentially subject to retaliatory tariffs may be economically or politically too costly or undesirable. When tariffs are imposed, there will be little time to find alternative supplies that avoid the tax hit. It would be very prudent for purchasers of supplies to start considering all their alternatives, including reaching out to suppliers that you have not dealt with previously. Incumbent supplier bias can keep other suppliers away so it may take a proactive approach to build an alternative supply chain.
• Stress test financial models and assumptions. On large construction and infrastructure projects especially, certain assumptions about pricing and availability of supply are built into financial models. These should be tested against the new tariff and trade realities, no matter what stage the project is at.
• Inflation protection. The U.S. tariffs and Canadian countermeasures, as well as general trade disruption and uncertainty, will increase prices and result in inflation. Project participants should look at all available means of mitigating against price increases. This could include purchasing goods and materials that may be impacted sooner or stockpiling them, looking at alternative suppliers that will not be impacted and/or locking in prices or addressing price increases in your contracts.
• Consider tariff review and relief measures. Confirm the tariff classification for your goods and materials. Consider applying for a remission of duties. Consider whether duty drawback for import or re-export is available. Make sure the valuation by customs is accurate and reasonable, especially for derivative products. See Gowling WLG tariff resources hub for more tariff relief options.
• Gowling WLG tariff resources hub. Gowling WLG has created a tariff hub to assist clients with navigating the disruption to their businesses due to the U.S. tariffs. The hub offers news, analysis, articles, past and upcoming events and other tools and resources to help clients through these challenging economic times. This includes our article on Preparing for tariffs: A guide for North American importers and exporters.

How Gowling WLG can help

In addition to the Gowling WLG tariff hub, the Infrastructure and Construction Industry Group is also working a number of articles and events:

• Our lawyers have been interviewed on CTV News and Global News, Bloomberg BNN and other media outlets on the impact of tariffs on the construction industry.
• Building Brief article on “Tariffs and your construction contract” that will be published soon.
• On March 5, 2025 from 12 - 1 p.m. EST, we are hosting an online discussion on how to best navigate these workforce challenges and avoid legal risks (register here).
• On March 11, 2025 from 12 - 1:30 p.m. EDT, we are co-hosting a webinar on “The Impact of Tariffs & Trade Turbulence on Construction Projects” with StrategyCorp.

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We would be happy to meet with you or your organization to discuss your questions and concerns about the how the US tariffs and trade disruption is impacting your construction business and projects, and how to mitigate against those adverse impacts. If you have any questions, please contact any member of our Infrastructure and Construction Industry Group.