Tariff Risk Update – May 2025

By Kenneth F. Wille, PE – President, 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.

🔍 Tariff Impact on U.S. Construction – May Update

As part of our ongoing effort to monitor tariff-related risks, we’re continuing to track the shifting international trade landscape and its effect on U.S. construction. Below is this week’s insight from our President and CEO, Ken Wille, PE, using his 10-point personal risk scale (10 = highest risk):

1. Uncertainty – Risk Level: 9/10

The 90-day pause on new tariffs remains in effect, but significant duties are still in place, particularly on Chinese imports. While negotiations haven’t worsened, they haven’t improved either. The sheer scale of pending trade talks—with over 10 key nations and 60+ countries involved—means pricing volatility will likely outpace any resolution.

Bottom line: We’re not lowering the risk rating on uncertainty. It’s still high, and time is running out to avoid long-term cost impacts.

2. Lender Resilience – Risk Level: 8/10

We’re seeing a shift in tone across the lending space.

• Some clients with strong pipelines are slowing down.

• Multiple banks now require greater scrutiny on Plan & Cost Reviews, buyout tracking, and stored material verification.

• We expect to see more bridge financing, affordable deals, and workouts on distressed projects.

The word of the month? “Pause.” Pause on hiring. Pause on new developments. Pause on expansion. A short-term pause can become a long-term freeze—and potentially, layoffs.

3. Construction Costs – Risk Level: 8/10

Cost increases tied to tariffs are real, but not yet widespread.

We’re seeing 10%–20% of projects reporting direct impacts, such as:

• A lumber package jumping from $200K to $300K

• Windows increasing from $400K to $450K

What’s more alarming: The Port of LA saw a 35% drop in ships this week. Fewer imports = fewer available materials = higher prices. With U.S. retailers sitting on only 6 weeks of goods, we may see ripple effects across summer projects.

4. Current Tariffs – Risk Level: 8/10

Here’s a snapshot of the latest tariff landscape affecting construction:

Universal Tariff

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

Country-Specific Tariffs

• China: 145% (unchanged)

• Mexico: 25% on most goods

• Canada: 25% on non-USMCA imports

Material-Specific Tariffs

• Steel & Aluminum: 25% reinstated

• Lumber: 14.5% duty on Canadian lumber remains

• Appliances & Fixtures: 56% imported from China → impacted by 145% tariff

• Copper: Now added at 12.5%, affecting plumbing and electrical budgets

🛠️ What Our Inspectors Are Hearing in the Field

To better understand how tariffs are playing out on job sites across the country, we asked KOW's inspection team a few key questions about tariff-related change orders, buyout strategies, and client responses. Here’s what we learned:

1. Are change orders related to tariffs being issued?

Most inspectors have not yet seen formal tariff-related change orders, though some reported early material price increases (e.g., roof shingles). For the majority of projects, materials were already bought out before price hikes hit.

“Most contractors I’ve spoken with say they haven’t felt impacts yet — many projects were fully bought out early on.”

2. Are developers preparing for potential tariff cost increases?

Where acknowledged, developers are primarily handling potential increases through contingency allocations. There hasn’t been widespread adoption of escalation clauses or pass-through cost provisions—at least not yet.

“None of my active projects have clauses tied to tariffs, but developers are watching closely.”

“I am starting to see additions of tariff related clauses within General Contracts when preparing Plan and Cost Reviews pre-construction”

3. What mitigation strategies are being used?

Some proactive approaches are starting to surface:

• Early buyout of trades and materials

• Bulk purchasing across multiple projects

• Storing materials onsite to lock in prices and reduce volatility

“I’m seeing more stored materials than usual — GCs are locking in prices with deposits.”

4. Are buyout strategies evolving?

Yes—particularly where trades are exposed to tariff risk (like structural steel, HVAC, electrical switchgear, cabinetry, tile, and flooring). Developers and GCs are showing interest in consolidated procurement to reduce exposure.

“One project I’m on added a provisional note specifically addressing tariffs — not something we were seeing last year.”

✅ Bottom Line & Strategic Recommendations

To navigate the shifting landscape, we advise the following:

• Tariff Impact Clause: Contractors and subcontractors should proactively communicate any changes in pricing due to tariffs. Include language in contracts to address supply chain delays and cost escalation.

• Supply Chain Diversification: Interest is increasing in sourcing from India, Vietnam, and Mexico as alternatives to China.

• Contractual Adjustments: Update buyout language, subcontract terms, and prepare for future change orders.

• Policy Monitoring: The administration has hinted at potential reductions in Chinese tariffs—so stay alert for policy updates.

• Frequent Communication: Expect GCs to raise Force Majeure claims or request material cost increases. Frequent check-ins and documentation are key.

📊 Stay Informed. Stay Prepared. We’ll continue monitoring the impact of tariffs and sharing updates every two weeks to keep your teams and stakeholders ahead of the curve.