Key Considerations for Building Product Manufacturers Around Tariffs

 

The construction and building products industry is navigating a rapidly shifting landscape influenced by newly enacted tariffs on countries such as Canada and China, particularly the 25% tariffs on steel and aluminum. 

These trade policies are creating both challenges and opportunities for manufacturers, forcing them to reconsider supply chains, investment strategies and evaluate their competitive positioning. Some companies will gain pricing power, while others face supply chain disruptions and rising costs. The ability to adapt will define success in this evolving market. As Darwin stated, “It is not the smartest nor the strongest that survive, it is the ones that are most adaptable to change that survive.”

While the effects discussed in this article encompass all types of tariffs, if you examine the historical levies enacted in 2018 on steel and aluminum, materials costs rose about 14% the first year they were implemented, according to FMI data. Current projections see U.S. steel prices increasing 8.2% and aluminum rising 5.7% as a direct result of the current tariffs. 

“Project pipelines may slow, and firms will need to adopt strategic countermeasures to navigate this volatile environment,” said FMI Partner Jay Bowman. “However, these challenges also present opportunities for firms that can adapt their procurement strategies, hedge against risk, and position themselves as trusted advisors to clients.” 

Domestic Manufacturers: Pricing Power versus Supply Chain Pressures 

For U.S.-based manufacturers that source materials domestically, tariffs offer a competitive advantage. With imported materials and products becoming more expensive, domestic producers can capitalize on pricing gains and reduced foreign competition. In a historically tight margin industry, the ability to raise prices without being undercut by international rivals is a significant benefit. The manufacturers we spoke with are considering how to take advantage of these opportunities. 

However, not all domestic manufacturers are well positioned. Many rely on foreign raw materials such as metals, chemicals and specialty components, making them vulnerable to cost increases. For example, we spoke with several manufacturers that source raw materials from markets outside the U.S. who are looking to reevaluate these strategies and find new suppliers to hedge against the unfavorable pricing dynamics. 

Those with manufacturing operations outside the U.S. also face challenges, as imported goods from their international facilities may be subject to tariffs, eroding their pricing power in the U.S. market. Many are looking for places to shift production to the U.S. and evaluating potential shutdowns. 

To mitigate these risks, firms should leverage domestic supply chains to gain market share from foreign competitors, identify alternative U.S.-based suppliers, consider reshoring manufacturing operations and strategically adjust pricing to offset increased costs while maintaining competitiveness. 

Foreign Manufacturers: Challenges in Exporting, Opportunities in U.S. Investment 

For foreign firms exporting construction materials to the U.S., tariffs present a direct threat. Higher costs make their products less competitive against domestic alternatives, forcing companies to absorb price increases, pass costs to customers or explore alternative operations. 

Over the last year, the number of foreign entities interested in the U.S. building product space (particularly metal) has substantially increased. These organizations are looking at acquisitions to create a foothold in the market as well as green fielding facilities to capitalize on the opportunity. The tariff impact was noted to increase the attractiveness for establishing U.S. operations. 

Yet, the same challenge is driving many foreign companies to invest in U.S. manufacturing. For example, Recticel Group announced it would build an insulated metal panels plant in the U.S. to open in 2026. By establishing production facilities domestically, they can circumvent tariffs, improve supply chain efficiency and strengthen their foothold in the U.S. market. To adapt, foreign manufacturers have an opportunity to explore greenfield investments to establish U.S.-based manufacturing operations, form joint ventures or acquire existing U.S. manufacturers to retain market access, seek tariff exemptions or government incentives, and optimize pricing strategies to remain competitive despite higher import costs. 

The Construction Industry: Pricing Volatility and Market Shifts 

Tariffs are not just affecting manufacturers; they are reshaping the broader construction industry. Higher material costs can drive up overall project expenses, leading to budget overruns, construction delays and shifts in demand. 

Developers, contractors and distributors must respond proactively to mitigate these risks. Key considerations should include assessing project budgets to account for material price fluctuations, exploring alternative cost-effective materials, securing long-term pricing contracts to hedge against market volatility and diversifying supplier networks to include more U.S.-sourced goods. These measures will help manage financial uncertainty and maintain project feasibility despite market disruptions. 

U.S. Manufacturing as a Growth Opportunity 

With the increased emphasis on domestic production, the U.S. manufacturing sector presents an attractive opportunity for investors. Non-U.S. firms looking to establish a foothold in the U.S. market may drive increased demand for industrial real estate, manufacturing facility construction and workforce expansion. 

Private equity firms, industrial developers and corporate investors are closely watching these trends, recognizing the potential for long-term growth in U.S.-based production and supply chain infrastructure. To capitalize on these shifts, a potential opportunity exists to invest in industrial real estate to support manufacturing expansion, acquire or expand U.S.-based manufacturers, advocate for policy incentives that encourage domestic production, and support workforce development initiatives to sustain manufacturing growth. 

The Road Ahead: Navigating a Tariff-Defined Market 

The impact of tariffs on the construction and building products industry is both significant and ongoing. Some companies will benefit from pricing shifts, while others must rework their strategies to remain competitive. The only certainty is that tariffs and their influence on pricing will continue to shape the industry’s trajectory. 

Manufacturers that proactively adjust—whether through reshoring, supply chain diversification or strategic investment—will be best positioned to navigate this evolving landscape. In a market defined by uncertainty, adaptability is the key to maintaining a competitive edge.