Introduction
The Canadian construction industry is grappling with the ongoing fallout from recent tariff measures between Canada and the United States. With highly integrated cross-border supply chains, a 25% tariff on steel, aluminum, and other building materials have had both swift and severe effects. Contractors are likely to see higher material costs (for steel, aluminum, and lumber, in particular), and supply chain delays, while project owners face budget overruns and an increased risk of contractual disputes over who bears these costs.
This article aims to analyze how these tariffs (both in effect and expected) will, or are already, intersecting with Canadian trade laws and construction contracts, what the broader economic impacts on stakeholders from contractors to suppliers may be, and provide practical strategies to mitigate these risks.
Canadian Legal Frameworks Affected
Tariffs on construction materials engage multiple layers of Canada’s legal framework, from international trade agreements to domestic regulations. Understanding these frameworks is crucial for industry professionals to navigate rights and obligations when tariffs strike.
USMCA and Cross-Border Trade Law
The United States–Mexico–Canada Agreement (USMCA, known as CUSMA in Canada), and formerly, NAFTA, generally guarantees free trade in goods between Canada and the U.S., eliminating most import tariffs. However, it does not preclude tariffs entirely. Each country can still invoke trade remedies or national security measures that impose duties outside the usual free-trade rules. For example, the U.S. government’s 2018 “national security” tariffs on Canadian steel and aluminum – and Canada’s retaliatory duties – occurred despite the free-trade spirit of NAFTA/USMCA. Resolving such disputes required political negotiation beyond the trade agreement itself. Notably, USMCA’s chapter on government procurement does not cover U.S.-Canada procurement, so access to each other’s public projects relies on the WTO’s Agreement on Government Procurement (GPA). Taking the form of a plurilateral WTO treaty, the GPA obliges Canada and other signatories to give foreign suppliers open, non-discriminatory access to covered public procurements.
Government Procurement Laws
Public construction procurement in Canada is constrained by trade commitments that require open and fair competition. Government entities generally cannot respond to tariffs by simply preferring domestic suppliers, as agreements like the WTO Agreement on Government Procurement (GPA) (and prior NAFTA commitments) oblige them to treat foreign bidders equally. Instead, public owners must manage tariff impacts through contract terms (e.g. price adjustment clauses) or project budgeting rather than through protectionist purchasing policies.
Domestic Trade Regulations
Within Canada, statutes such as the Customs Tariff and the Special Import Measures Act (SIMA) empower the federal government to impose tariffs, surtaxes, and anti-dumping/countervailing duties.[1] For example, in 2025 Canada announced 25% retaliatory tariffs on $155 billion of U.S. goods after the U.S. imposed new tariffs on Canadian products.[2] Likewise, anti-dumping duties on construction inputs (like steel rebar) have increased costs for domestic builders. While interprovincial trade is tariff-free under the Canadian Free Trade Agreement, federal trade measures determine the costs of imported materials. The government can also provide relief – for instance, a remission process exists to exempt certain imports from tariffs in exceptional cases. Construction firms must stay mindful of these domestic trade tools, as they directly influence material pricing and availability.
Tariffs in Construction Contracts: Case Law and Hypotheticals
Tariffs can up-end construction contracts, raising the question: who is responsible to incur the costs of an unexpected increase in material costs? The answer often lies in the contract’s risk allocation. Many standard construction contracts do not explicitly mention “tariffs,” but they do address changes in “taxes” or “duties,” which are closely related. For example, the standard CCDC 2 Stipulated Price Contract provides that the contract price includes all applicable taxes and customs duties at the time of bid closing, and any increase or decrease in costs due to changes in those taxes or duties after the bid shall adjust the contract price. A new tariff is essentially a new or increased customs duty, so under such clauses a contractor can seek an upward price adjustment to offset tariff costs.
Not all contracts contain these protections. In the absence of a tax/duty adjustment clause, the risk of cost increases from tariffs generally falls on the contractor in a fixed-price agreement. Contractors have attempted to find relief under doctrines like force majeure, but Canadian case law sets a high bar. Courts distinguish between an unforeseen event that prevents performance and one that merely makes it more expensive. If performance is still possible (albeit at a higher cost), force majeure will typically not apply.
Consider this hypothetical scenario: a contractor bids a fixed-price project before any tariffs, then mid-project a new 25% import duty on steel is imposed. Under a contract with a clause like GC 10.1 in a CCDC2 form of contract, this change in law would increase the contract price to cover the new duty. If the contract lacks such a clause, however, the contractor may have to absorb the increase. Unless a force majeure or change-in-law provision can be interpreted to cover the tariff, the owner has no obligation to pay more. In practice, the contractor might appeal to the owner for relief or attempt to renegotiate to avoid a harmful loss. Industry groups like the CCA have encouraged owners to be reasonable in such situations and consider adjusting the contract price for unforeseen tariff costs. Ultimately, allocating tariff risk clearly in the contract (through price adjustment or escalation clauses) is the best way to prevent disputes.
Broader Economic Impact on the Industry
Tariffs on construction materials have ripple effects beyond individual contracts, affecting stakeholders across the construction sector – from contractors and developers to suppliers, manufacturers, and end-users.
Contractors and Developers: Contractors often work on thin margins, so a 25% spike in material costs can move a profitable project into the red. This risk is especially acute for fixed-price contracts that lack escalation clauses. Project developers and owners may see financing gaps and budget overruns; in extreme cases a project might become infeasible if costs rise too much. Tariffs can also strain relationships along the contractual chain: a contractor hit with unexpected costs might delay payments to subcontractors or suppliers and seek concessions from the owner, creating conflict up and down the project hierarchy.
Suppliers and Manufacturers: Those who supply construction materials, as well as domestic manufacturers, are heavily impacted by tariffs. Such measures are intended to protect domestic industries by making imported goods more expensive. In the short term, Canadian manufacturers (for example, steel mills) might benefit from reduced foreign competition. But because the Canadian market is intertwined with the U.S., losing access to U.S. customers can hurt domestic producers. Approximately 50% of Canadian steel production (around $7.5 billion annually) is exported to the U.S., so U.S. tariffs quickly translate into lost sales and production cuts in Canada.[3] In 2018, when steel and aluminum tariffs were imposed, Canada’s metal industry experienced a downturn, and it became fairly clear that “no one wins in a trade war”.[4] Meanwhile, Canadian importers of construction components (from steel beams to appliances) must either absorb the added 25% duty or pass it on to contractors. If certain U.S.-sourced items become prohibitively expensive or scarce, builders will need to find alternative sources, potentially causing project delays or changes in specifications.
Related Industries and Consumers: Tariffs also ripple into related sectors like real estate development and infrastructure. Higher construction costs can slow down investments in new projects. One analysis found that roughly 8% of Canadian construction inputs (about $33 billion worth) are imported from the U.S.[5] Tariffs effectively act as a tax on that portion of materials. This adds to inflationary pressure in an industry already grappling with high costs. Tariff uncertainty may weaken the Canadian dollar, making other imported materials (from any country) more expensive as well. The Canadian Home Builders’ Association warns that widespread tariffs could reduce housing starts and renovation activity by undermining economic confidence and affordability.[6] There are also long-term implications: for instance, if U.S. tariffs sharply reduce exports of Canadian lumber, some mills might shut down, permanently shrinking domestic supply capacity and driving up wood prices for future construction. In sum, tariffs can tighten supply, raise costs, and dampen growth across the construction industry and its allied sectors.
Strategies for Mitigating Tariff Risks
Given these challenges, a proactive approach is essential. Construction lawyers and project stakeholders can implement several strategies to mitigate tariff-related risks:
- Contractual Safeguards: Include clear provisions in contracts to address tariff-induced cost changes. For instance, add a taxes and duties clause (modeled on CCDC 2 GC 10.1) to adjust the contract price if new import tariffs or duties come into effect. Parties can also negotiate price escalation clauses tied to specific materials or a broad change in law clause to cover legislative changes like tariffs. Ensure force majeure clauses are reviewed: the intent is to cover government trade actions, they should say so explicitly, since standard force majeure language typically does not excuse mere economic hardship. Industry guidance suggests using standard clause language and addressing tariff risks upfront during contract drafting, rather than leaving it ambiguous.
- Proactive Procurement: Plan ahead to minimize exposure. Where feasible, pre-purchase or secure price commitments for key materials before tariffs hit. Negotiate bulk purchase agreements or long-term supply contracts to lock in prices for commodities like steel or aluminum. Consider alternative sourcing for critical items – for example, sourcing materials from domestic producers or non-U.S. trade partners to avoid tariff costs. Diversifying the supplier base and building some flexibility into project schedules (to accommodate potential customs delays) can help cushion the impact if a tariff is imposed mid-project.
- Financial Contingency Planning: Mitigate the financial impact by budgeting for volatility. Contractors bidding during uncertain times should clarify their assumptions, perhaps by including a contingency or stating that pricing is subject to adjustment if new tariffs are imposed. Owners should be prepared for higher bids reflecting tariff risk or consider contract mechanisms to share the risk (for instance, establishing a mutual contingency fund or a threshold for cost increases that triggers a re-negotiation). Having a dedicated tariff contingency in project budgets can keep a project on track even if material prices spike unexpectedly.
- Regulatory Compliance & Relief: Stay informed on trade developments and leverage any available relief. Assign someone to monitor tariff announcements, government orders, and customs regulations relevant to your supplies. If tariffs do hit, determine if any duty remission or drawback programs can soften the blow – the government may allow exemptions or refunds for certain cases. Ensure proper customs planning as well: for example, use correct tariff classifications and explore whether materials qualify for preferential treatment under other trade agreements to reduce or avoid duties. The industry should also advocate (through associations) for government measures to mitigate harm, such as temporary tax relief or expedited trade negotiations
Conclusion
Tariffs present a complex challenge for Canada’s construction industry, but it is a challenge that can be managed with careful planning and legal foresight. By understanding how trade agreements, procurement rules, and domestic trade laws affect their projects, industry players can better allocate the risk of tariffs through contract terms and procurement strategies. Equally important is anticipating the ripple effects on supply chains and costs and adjusting project plans accordingly. Construction lawyers play a key role in drafting tariff-conscious contracts and guiding clients on compliance or relief options. Ultimately, while there may be no winners in a trade war, strategic preparation can ensure that Canadian contractors, developers, and suppliers weather the storm. With vigilance and flexibility, the industry can continue to deliver successful projects despite the headwinds of global trade tensions.
Sources:
- Customs Tariff, SC 1997, c 36.
- Special Import Measures Act, RSC 1985, c S-15.
- Canada, Department of Finance, Canada announces robust tariff package in response to unjustified U.S. tariffs (News Release, 4 March 2025), online: Department of Finance Canada.
- McMaster University, Faculty of Engineering, How will tariffs impact the steel sector in Canada? A Q&A with Joe McDermid (11 February 2025), online: McMaster University, Faculty of Engineering.
- Altus Group, Trade tensions – What could tariffs mean for Canada’s construction market? (26 February 2025), online: Altus Group.
- Canadian Home Builders’ Association, Tariffs negative impact on overall economy will likely slow down housing starts (Press Release, 4 March 2025), online: Canadian Home Builders’ Association.
[1] Customs Tariff, SC 1997, c 36; Special Import Measures Act, RSC 1985, c S-15.
[2] Canada, Department of Finance, Canada announces robust tariff package in response to unjustified U.S. tariffs (News Release, 4 March 2025), online: Government of Canada
[3] McMaster University, Faculty of Engineering, How will tariffs impact the steel sector in Canada? A Q&A with Joe McDermid (11 February 2025), online: McMaster University, Faculty of Engineering.
[4] Ibid.
[5] Altus Group, Trade tensions – What could tariffs mean for Canada’s construction market? (26 February 2025), online: Altus Group.
[6] Canadian Home Builders’ Association, Tariffs negative impact on overall economy will likely slow down housing starts (Press Release, 4 March 2025), online: Canadian Home Builders’ Association.
The author would like to thank Harinder Singh, Student-at-Law, for his assistance with this article.