Since taking office on January 20, 2025, President Donald Trump's administration has imposed a series of tariffs on almost all countries, including Canada. Beginning in early March 2025, the current US administration imposed 25% tariffs on key Canadian exports, including potash, steel and aluminum.
In response, Canada has imposed reciprocal tariffs on nearly CA$30 billion worth of American goods imported into Canada. For a complete list of the reciprocal tariffs currently imposed by Canada, click here.
Escalating tensions between the historical trade partners will have vast impacts on many industries, including the construction industry in both the US and Canada. Canada's construction industry contributed approximately CA$151 billion to the economy and accounted for roughly 7.4% of Canada's GDP in 2024.1 The sector employs approximately 1.6 million people.2 There is no doubt that the current tensions will be felt across all construction areas, including residential, commercial and industrial construction.
Impact on Canada's construction industry
Several items on Canada's retaliatory tariffs list are products regularly imported for use in the construction industry, including sheet piling made of iron or steel,3 railway or tramway track construction material,4 butt welded fittings,5 structural steel components such as beams, columns and frames for buildings and bridges,6 aluminum tubes and pipes,7 cast iron and steel articles such as fittings,8 and door and cabinet hardware fittings and window fixtures.9 In addition, prefabricated buildings, frames, doors and windows10 are also subject to the 25% tariff, as well as aluminum framing panels and supports,11 all of which will particularly impact the modular construction industry.
Increasing economic uncertainty with respect to the import of key goods used in the construction industry will surely impact many projects. With key components such as fittings becoming more expensive, prices will likely climb, which will affect the affordability of many projects. In addition, the increased cost of these goods can create significant supply chain risks and lead to delays in projects.
Parties will also be faced with questions as to how the impacts arising from tariffs, including cost increases, are addressed in their existing contracts or how to address the uncertainty with respect to contracts that are currently under negotiation.
Contractual risks
Force majeure clauses and principles of frustration of contract are unlikely to excuse parties from their contractual obligations (parties will likely not have the right to seek an increase in the contract price to cover cost increases, supply chain delays, or alternate sourcing for products not impacted by tariffs). In 2017 and 2018, during President Trump's first administration (while Canada, the US and Mexico were in the process of renegotiating the North American Free Trade Agreement), the US imposed similar tariffs, and Canada retaliated with similar reciprocal tariffs. Throughout his election campaign for a second term, President Trump was clear that he intended to impose tariffs on key Canadian goods. As such, the imposition of tariffs should not have been a surprise, although the current climate of economic uncertainty was arguably not anticipated to rise to the level it has. The question is whether current construction contracts include terms that provide for cost increases arising from tariffs to be passed along to the owners. Some contracts commonly used in the industry provide a mechanism by which increased costs arising from tariffs may be passed along to owners.
The CCDC2 2020 and the CCDC5B 2010 contracts, both frequently used in the construction industry in Canada, include general conditions which facilitate passing along the increased cost arising from such tariffs. However, the CCDC2 2020 Stipulated Price Contract wording is different from the CCDC5B Construction Management Contract for Services and Construction, 2010 version, extracts from each of which are set out below.
GC 10.1 of the CCDC5B Construction Management Contract for Services and Construction, 2010, currently provides that:
GC 10.1 TAXES AND DUTIES
10.1.1 The Construction Manager shall pay all customs, taxes and duties in effect during the performance of the Work. The amount incurred shall be included in the Cost of the Work as in accordance with paragraph 7.1.14 of the Agreement A-7 — COST OF THE WORK.
GC 10.1 of the CCDC2 2020 Stipulated Price Contract provides that:
GC 10.1 TAXES AND DUTIES
10.1.1 The Contract Price shall include all taxes and customs duties in effect at the time of bid closing except Value Added Taxes payable by the Owner to the Contractor as stipulated in Article A-4 of the Agreement — Contract Price.
10.1.2 Any increase or decrease in costs to the Contractor due to changes in taxes and duties after the time of the bid closing shall increase or decrease the Contract Price accordingly.
Duties are taxes levied on imported goods,12 which include tariffs. For those parties currently negotiating construction contracts, it is important to consider these clauses and whether they should be appropriately varied in the circumstances. Further, parties who do not have such provisions in their agreements should consider whether there are other clauses that may give rise to a right to pass along such cost increases to the other contracting party.
Where a bespoke fixed-price contract does not contain a similar provision, the ability of the contractor to pass along cost increases arising from tariffs may be very limited, depending on the contract terms. The parties may wish to consider language that provides the basis for relief in such circumstances, such as:
- Requiring the contractor to provide the owner with timely and prompt notice of the increased costs;
- Requiring the contractor to mitigate any increased costs by considering reasonable substitutes for affected imported goods after factoring in the tariffs but having regard to the impact on the other costs of carrying out the work (including the cost of any schedule delay); and
- Requiring as a condition of relief of the increased costs that the tariffs have been legally enacted by the governments of Canada and the US (which tariffs directly increase the end price of the goods used in carrying out the construction).
In the current circumstances, many parties are also considering adding an escalation clause for key material costs, such as steel, aluminum and lumber. Whether or not an owner may be willing to amend a contract to include such terms, depends upon a number of factors including the bargaining position of each party to the construction contract at issue.
Takeaways
During the 2018 tariff disputes between Canada and the US, there was significant disruption to the supply chain, particularly with respect to steel and aluminum prices and availability. We can expect to see similar ripple effects across all areas of the construction industry. As a result of disruptions, prices of key commodities are likely to increase even further, and not simply due to the tariffs. Supply chain impacts, caused in whole or in part by the imposition of counter-tariffs, are inevitable. Industry participants may experience delays if US suppliers hesitate or even pause shipments of such commodities, and parties may be unable to afford the purchase of certain products under fixed-price contracts which do not have a mechanism to address the added costs. The current economic uncertainty may lead to the cancellation of projects or cause owners to put a hold on their planned projects. However, Canada's cities are in dire need for residential housing, in particular affordable housing. Further, there is a real need for continued development of critical infrastructure, such as transit. How the government will respond to the increased uncertainty weighed against the obvious need for critical infrastructure and residential housing remains to be seen.
The authors would like to thank Melissa Kean for her assistance with this article.
Footnotes
1. Canadian Construction Association, Value of the Industry.
2. Construction Canada, Construction Sector to Contribute $151 billion to the Economy.
3. HS 7301.20.00.
4. HS 7302.30.10, 7302.30.90, 7302.40.00, 7302.90.00.
5. HS 7307.99.00.
6. HS 7308.10.00, 7308.20.00, 7308.30.00, 7308.40.00, 7308.90.00.
7. HS 7608.10.00, 7608.20.00, 7609.00.00.
8. HS 7325.91.00, 7325.99.10, 7325.99.91, 7325.99.99, 7326.11.00, 7326.19.10, 7326.19.90, 7326.20.00, 7326.90.10, 7326.90.90.
9. HS 8301-8311.
10. HS 7308.
11. HS 7610.
12. nvestopedia, Import (Customs) Duty: Definition, How It Works, and Who Pays It.
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