Tariffs and the Construction Industry: What Subcontractors Need to Know

This article was last updated on July 9, 2025, to reflect the latest tariff developments and construction industry impacts.

In an industry already challenged by tight margins, fluctuating material costs, and prolonged payment cycles, the recent tariff announcements have created a financial rollercoaster for subcontractors. As these changes continue to take effect, understanding their anticipated impact and implementing strategic responses is essential for business sustainability.

Understanding Tariffs

Tariffs are essentially taxes imposed on imported goods and materials. The recent wave of tariffs represents a strategy designed to protect domestic industries, address existing trade imbalances, and leverage economic pressure on other countries. 

How it works: When a government imposes tariffs, importers pay these additional costs at the border, which typically result in higher prices for materials throughout the supply chain.

Current Tariff Landscape

The tariff situation in the US has been a rapidly evolving headline over the past few weeks—and it’s been a lot to keep up with. Here’s a timeline of the tariff actions so far, along with a breakdown of what subcontractors specifically need to know:

• “Reciprocal Tariffs” Policy: On April 2, 2025, President Trump signed an executive order establishing a “Reciprocal Tariffs” policy, which initially introduced a baseline tariff of 10% on all imports to the US. This tariff remains in effect for most countries.
• Additional Reciprocal Tariffs: Beyond the baseline, higher reciprocal tariffs were applied to specific trading partners. This included a 34% tariff on Chinese imports and a 20% tariff on imports from the European Union. Initially, these additional tariffs affected 180 countries.
• Extended Pause on Reciprocal Tariffs (Except China): Originally scheduled to end on July 9, 2025, the 90-day pause on all reciprocal tariffs exceeding the baseline 10% has been extended to August 1, 2025. However, China continues to face significantly higher tariffs during this pause period—their tariff was increased to a total of 125% (including previous tariffs) and remains in effect throughout the extended pause.
• Section 232 Tariffs on Steel and Aluminum: The tariffs on many steel and aluminum imports have been increased to 50% as of June 2025 (except for steel and aluminum from the U.K., which is taxed at 25%). This is up from the previous 25% rate implemented on March 12, 2025. These tariffs are exempt from the additional reciprocal tariffs based on the country of origin, with the exception of Russia, which remains subject to 200% tariffs on all aluminum materials, as per Proclamation 10522.
• Tariffs on Canada and Mexico: Existing tariffs on imports from Canada and Mexico, established on March 4, 2025, remain in effect. The majority of these imports are subject to a 25% tariff. However, goods covered under the USMCA trade agreement are currently exempt from any tariffs. Additionally, non-USMCA-compliant energy and potash (a key fertilizer ingredient) imports are subject to a 10% tariff.
• Investigations into Copper and Lumber: Currently, copper and lumber products are exempt from the new reciprocal tariffs. However, investigations into how tariffs on these imports could threaten economic stability are ongoing, with results expected by November 2025. As written in this Federal Register notice, “[i]nterested parties are invited to submit written comments, data, analyses, or other information pertinent to the investigation to the Department of Commerce's Bureau of Industry and Security.”‍
• Tariffs on Automobiles and Parts: Imported new cars falling under this list of HTSUS codes currently face a 25% tariff, effective April 3, 2025. A separate 25% tariff on certain imported car parts is scheduled to take effect on May 3, 2025; however, details on this aren’t currently clear. Additionally, any auto parts imported from Canada and Mexico that don’t meet USMCA rules will face a 25% tariff.

To further clarify which tariffs currently apply to specific products, refer to this handy chart.

As negotiations continue, the extension to August 1 has created additional uncertainty for subcontractors who must now plan for potential tariff reinstatement just as the construction season typically reaches its peak activity period.

Direct Impact of Tariffs on Commercial Subcontractors

The effects of these tariff changes are already rippling through the subcontracting ecosystem:

Material cost increases: Though the extended pause provides temporary relief for some materials until August 1, the 10% base tariff (along with the increased 50% tariffs on steel and aluminum) continues to drive up costs. This comes after nonresidential materials prices already jumped 9% in early 2025 due to panic buying. Subcontractors dealing with Chinese-sourced materials are experiencing the most severe impact, with potential cost increases exceeding 100% in some categories.

Industry analysts project that prices will likely keep rising as the year progresses, with even domestic suppliers potentially raising their rates to capitalize on reduced international competition and heightened demand.

Widespread project stress and abandonment: The Project Stress Index (PSI), a measure of construction projects that have been paused, abandoned, or have delayed bid dates, closed May 2025 at 122.8, representing an 11.4% month-on-month increase. This rise was driven by a 30.3% surge in abandonment activity across nonresidential and multifamily projects, while bid-date delays decreased 1.9% and on-hold activity saw negligible change. Overall, project stress now sits 22.8% higher than 2021 baseline levels.

The constant back-and-forth on tariff policies is sidelining projects across the industry, shrinking backlogs as developers and financiers become increasingly cautious about committing to new construction projects amid uncertain material costs.

Supply chain disruption: Beyond cancellations, the tariff changes are reshuffling the entire construction supply chain. With Chinese materials now facing 125% tariffs, suppliers are scrambling to find new sources, creating unpredictable material availability and pricing. Subcontractors may experience longer lead times and less reliable delivery schedules, making it harder to plan projects effectively.

Contract challenges: Subcontractors in fixed-price contracts who signed before the tariff announcements could be forced to absorb costs that weren’t initially factored into the bids.

Cash flow pressure: Perhaps most critically, the combination of higher upfront material costs and potentially delayed payments could create significant cash flow problems for subcontractors. 

Strategic Planning During the Extended Pause on Tariffs

While the natural instinct during times like these is to cut costs and delay investments, there are other strategies that can help you build up your financial resilience before these tariffs are potentially reinstated.

1. Optimize cash flow management.

Revamp your billing process: Streamline progress billing by implementing systems that standardize documentation, track completion percentages accurately, and seamlessly generate custom pay applications for all your GCs. Together, this can dramatically increase your pay applications’ first-time acceptance rate, helping you avoid last-minute fire drills and payment delays.

Enhance collections: Review or implement an effective A/R escalation process for handling overdue invoices. Set up follow-up protocols and clarify roles to help your team secure payments more quickly (or use Siteline to do it for you).

By speeding up your payment cycle, you can improve working capital, which helps offset rising material costs and provides a buffer against potential project cancellations.

2. Leverage cash flow forecasts.

Create detailed forecasts: Prepare weekly cash flow forecasts for the next 120 days, extending beyond the tariff pause to identify potential issues. For subcontractors, this involves aligning expected material payments with anticipated progress billings and retention releases across all active projects.

Plan for impact: Create multiple financial scenarios based on different post-pause tariff outcomes. Consider modeling the impact of potential 25%, 50%, or higher tariff rates on your specific material mix and project portfolio.

3. Monitor and analyze your backlog.

Track pipeline health: With project abandonment rates spiking and the construction industry facing mounting stress, having clear visibility into your backlog becomes essential for survival and growth. Monitor contract values, analyze trends in your work queue, and identify which projects are at risk.

Make data-driven decisions: Use backlog analytics to understand patterns in your work pipeline and make informed decisions about resource allocation and business development priorities. 

The clearer your financial picture and project pipeline visibility, the more insight you'll have to make critical decisions about staffing, material purchasing, and which new projects to pursue or avoid.

4. Adjust contract strategies.

Material price protection: For contracts extending beyond the extended pause, incorporate escalation clauses that allow for adjustments based on actual material cost increases.

Timing and terms: Where possible, negotiate more favorable payment and retention terms and consider requiring deposits for specialized materials likely to face higher tariffs after the pause expires, particularly those sourced from China.

5. Reassess supply chain and inventory.

Strategic sourcing: Identify materials most affected by China-specific tariffs and explore domestic or international alternatives with lower tariff exposure.

Selective stockpiling: For critical materials that may face higher tariffs after the pause expires, consider reasonable advance purchasing while tariff rates are lower.

How Siteline Can Help

The current environment of project stress, shrinking backlogs, and tariff uncertainty demands real-time visibility into your business operations. Siteline provides the financial intelligence subcontractors need to navigate these challenges.

Our system delivers up-to-the-minute insights into your cash flow pipeline and project backlog health, while accelerating payments by three weeks through streamlined billing and automated collections. This real-time visibility enables you to quickly adapt to changing market conditions, identify at-risk projects, and make informed financial decisions, building lasting stability for your business—no matter the circumstances.

If you're interested in learning how Siteline can improve your cash flow and provide critical financial visibility during this period of uncertainty, request a personalized demo here.