agchouston.org Summer 2025 Cornerstone 19 or exceptions. “Conversely, supplier announcements of prospective price changes may be altered or withdrawn on short notice if tariffs or competitors’ pricing changes.” In addition to impacting costs on a wide range of imported goods crucial to construction, the tariffs are also altering project costs, straining supply chains, and demanding a new level of fundamen- tal foresight from contractors striving to maintain profitability and project viability during uncertain times. However, according to the AGC of America, the “medium-term outlook is modestly positive” as “economic growth will continue but risks of inflation and recession are increasing” primarily due to the impacts of tariffs. Immediate Challenges to Consider Regardless of political affiliation or beliefs, contractors must strategically address these tariffs to navigate the dynamic economic environment. 1. Material Costs Increases The most immediate and pressing result of the new tariffs is increased material costs, as reduced profit margins could potentially render certain projects finan- cially unfeasible. For Houston’s contractors, having to account for a 25% increase in the cost of steel and aluminum has already proven to be quite a challenge. Additionally, with significant commercial development and an extensive industrial industry (which relies heavily on structural steel and piping), Houston has been hit hard by tariffs as the US relies on imports for roughly 21% of its steel and nearly half its aluminum. Finished goods, too — such as HVAC components, flooring, tile, lighting, fixtures, cabinetry, and more — are often imported from China and parts of Europe, resulting in substantial price increases due to tariffs. 2. Supply Chain Instability In addition to increased direct costs, the new tariffs have caused significant instability within supply chains as man- ufacturers around the globe are having to respond to constantly changing price points as the tariffs are negotiated and re-negotiated. “Procurement timelines are para- mount due to long-lead materials like structural steel, mechanical equipment and electrical components,” confirmed Tiffany Harrod, partner, Peckar & Abramson, P.C.. In Houston, where contractors are accustomed to leveraging competitive prices facilitated by having easy access to the Port of Houston, things are also con- stantly changing. Contractors are now facing delayed deliveries with longer lead times and supply shortages for materi- als subject to tariffs, all while trying to simultaneously find and secure appro- priate alternative suppliers to ensure builds stay on schedule and budget while minimizing costly downtime. It’s expected that the US’s reliance on Canada and Mexico will increase for tariff-free items, including lumber, drywall and cement. However, whether or not the two countries will have the capacity to handle the increased demand previously met by suppliers in Asia or Europe is yet to be determined. 3. Bidding and Estimating Complications As prices constantly fluctuate due to vary- ing tariffs, it becomes significantly more difficult to accurately price future projects. It’s tricky to write appropriate estimates when costs are liable to change unex- pectedly, and contractors in Houston’s competitive market must now factor in not just current tariff-impacted costs but also the risk of future fluctuations. Tariff-induced uncertainties on costs (and also timelines) make it inherently riskier for contractors to write fixed-price or guaranteed maximum price (GMP) contracts, and when it comes to Hous- ton’s bustling development scene — where public works projects often come with strict financing structures — it can hinder securing new projects. Unfortunately, these scenarios neces- sitate building larger contingencies into bids (which can make them less com- petitive) or mandating the inclusion of complex material price escalation clauses, which can make client contract negotiations problematic. 4. Reshaping Competition The new tariff environment is subtly reshaping competition not just within the Houston market but across the entire United States. Larger contractors with greater purchasing power, more sophisticated supply chain management solutions, established relationships with domestic producers and the ability to stockpile materials have a competitive advantage over smaller operations. Conversely, smaller firms — or com- panies that specialize in projects relying heavily on tariff-impacted imports — may feel the immediate impact more acutely and may face greater hurdles than those using more domestically or North American-sourced materials. 5. Real Estate Impact As construction costs escalate, prices for new properties and rental rates will also rise and will impact affordability in the already competitive Houston market. Long-term, this could slow absorption rates or shift demand towards existing properties. 6. Impact on Houston Houston’s economic diversity means tar- iffs hit differently across its construction landscape, and contractors must tailor their risk assessment and mitigation strategies accordingly. Tariffs alter project costs, strain supply chains, and demand a new level of foresight to maintain profitability and viability.
