Tariff Risk Update - June 2, 2025

By Kenneth F. Wille, PE | Principal, KOW Building Consultants

Disclaimer: The content and data in this post are the property of Kenneth F. Wille and KOW Building Consultants. All insights are intended as an estimate and potential outcome only and should not be interpreted as a financial or cost prediction. Use at your own risk.

The following is an update on where I believe things are headed regarding U.S. tariffs and how they may impact construction costs nationwide. To help clarify risk levels, I use a personal 10-point index, with 1 being the lowest risk and 10 the highest. This content is intended for informational purposes only and should not be interpreted as financial or cost predictions. Use this data at your own risk.

🔍 Uncertainty

Risk Level: 8/10 (Last Week: 7/10)

The 90-day pause in the U.S.–China trade war (announced 5/14/2025) remains in effect, significantly lowering tariffs: U.S. tariffs on Chinese goods are down from 145% to 30%. While this has positively impacted global markets, the situation remains fluid.

The U.S. has also ended the de minimis exemption for low-value imports from China and Hong Kong, now imposing a 54% tariff on those goods. Tensions are escalating, with China accusing the U.S. of violating the truce through new export controls and visa restrictions. A federal trade court is reviewing whether to reinstate the de minimis exemption, which would again allow certain Chinese imports to enter duty-free.

Bottom line: Although trade de-escalation talks are underway, underlying issues remain unresolved, keeping risk levels high.

🏦 Resiliency of Lenders

Risk Level: 6/10 (Last Week: 6/10)

We continue to see a shift from robust pipelines to slower growth forecasts across the lending landscape. Banks are tightening their reviews, focusing heavily on project plans, cost verifications, and stored materials.

Construction backlog reached its highest point in 20 months (as of April 2025), as many developers hit “pause” on hiring, new developments, and expansion efforts. That said, affordable housing and bridge lending for distressed projects remain active.

One bright spot: margin expectations have improved, particularly among contractors with annual revenues over $100 million. Liquidity is still king for borrowers, especially if LTV ratios dip further this year.

🧱 Construction Costs

Risk Level: 8/10 (Last Week: 8/10)

Construction labor wages have risen 4.1% year-over-year, adding to total project costs. Material prices are showing mixed behavior:

• Steel: Prices have jumped 15–25% since January 2025, fueled by strong demand and tariff impacts.

• Aluminum: Costs appear to have leveled for now.

• Lumber: Up 13% YoY, currently priced at $599.50 per 1,000 board feet.

The Q1 2025 Turner Building Cost Index hit 1459, reflecting sustained cost pressures in the non-residential sector. Tariffs on Canadian lumber and key imports from Mexico (e.g., drywall) are expected to raise residential construction costs by 4%–6% over the next 12 months.

In related news, Black & Decker has announced price hikes tied to rising material costs—an indicator of broader industry shifts if the trend continues.

🌐 Current Tariffs

Risk Level: 8/10 (Last Week: 7/10)

New Developments:

• President Trump has threatened 50% tariffs on European Union (EU) imports, set to begin July 9, 2025. The EU exported $600B in goods to the U.S. last year.

• Steel & Aluminum tariffs have been doubled to 50%, effective next Wednesday, to boost domestic supply.

Key Tariff Breakdown:

• Universal Tariff: 10% on all imports (excluding Canada and Mexico)

Country-Specific:

• China: Reduced from 145% → 30% through 8/12/2025

• Mexico: 25% on most goods

• Canada: 25% on non-USMCA items

Material-Specific:

• Steel & Aluminum: Now at 50% tariff; sharp cost increases expected

• Lumber: Canadian lumber still carries a 14.5% duty

• Appliances & Fixtures: 56% imported from China; prices remain elevated despite temporary relief

• Copper: Under investigation for a potential 25% tariff later this quarter

✅ Bottom Line & Recommendations

Risk Level: 7/10 (Last Week: 7/10)

There are early signs of relief, but risks remain elevated. We continue to recommend:

• Tariff Impact Clause: Include clear contract language addressing cost volatility and material delays.

• Supply Chain Diversification: Explore alternatives in India, Vietnam, and Mexico to reduce reliance on China.

• Contractual Adjustments: Add force majeure, escalation clauses, and buyout tracking requirements.

• Monitor Policy Changes: With EU tariffs pending and copper on the radar, policy shifts could be rapid and impactful.

• Communicate Often: Update teams and stakeholders about buyouts, subcontract terms, and pricing pressures. Be prepared for change orders tied to both material costs and lead times.

We’ll continue tracking how global trade policies influence construction pricing, risk, and project timelines.📩 To subscribe to weekly updates, visit https://www.kowbc.com/blog