Marc R. Parette, AIA - March 13, 2025

In February 2025, The Trump Administration announced the reinstatement of a 25% tariff on global steel and aluminum imports, effective March 12, 2025. This policy aims to bolster domestic metal production but has significant implications for various industries, notably commercial construction in New Jersey. The state's construction sector, already grappling with high costs and labor shortages, now faces additional challenges due to increased material expenses and potential project delays.

Escalating Material Costs

Steel and aluminum are fundamental components in commercial construction, used extensively in frameworks, facades, and infrastructure. With New Jersey importing a substantial portion of these metals, the imposed tariffs are poised to elevate material costs considerably. Historically, similar tariffs led to a 14% surge in benchmark steel prices within the first year, as observed after the 2018 tariffs. This price hike can be attributed to reduced imports and steady demand, compelling contractors to source more expensive domestic materials or absorb increased costs. constructiondive.com

The New Jersey construction industry, characterized by numerous small to mid-sized firms, may find it challenging to absorb these additional expenses. Consequently, increased project costs are likely to be passed on to clients, potentially leading to higher commercial rents and property prices. This scenario could deter investment and slow the state's economic growth.

Supply Chain Disruptions

The tariffs are expected to disrupt established supply chains. New Jersey builders often rely on a mix of domestic and imported materials to meet project timelines and budgets. With imports becoming more expensive, there may be a rush to secure domestic supplies, leading to shortages and further price increases. This shift could cause project delays, as contractors wait longer for materials or seek alternative sources. Such uncertainties can affect project feasibility and financing, with lenders wary of backing projects with volatile cost structures.

Impact on Affordable Housing

Affordable housing projects, which operate under tight budgets, are particularly vulnerable. Increased construction costs could render some projects financially unviable, exacerbating New Jersey's existing housing shortage. Developers may hesitate to initiate new projects, and ongoing ones might face delays or redesigns to cut costs. This situation could stall efforts to provide affordable housing options, impacting low- to moderate-income families disproportionately.

Labor Market Concerns

The construction labor market in New Jersey could also feel the effects. Higher material costs might lead developers to scale back projects, resulting in reduced demand for construction workers. This contraction could lead to job losses or decreased wages in the sector. Moreover, workforce reductions at housing agencies, as part of broader federal budget cuts, could delay project approvals and funding, further stymieing construction activity.

politico.com

Broader Economic Implications

The ripple effects of the tariffs extend beyond construction. Increased building costs can lead to higher prices for commercial spaces, affecting businesses that lease these properties. Retailers, manufacturers, and service providers might face increased overheads, which could be passed on to consumers, contributing to inflation. Additionally, potential retaliatory tariffs from trade partners could impact other sectors of New Jersey's economy, such as agriculture and manufacturing, leading to a broader economic slowdown.

Mitigation Strategies

To navigate these challenges, New Jersey's construction firms might consider several strategies:

• Diversifying Suppliers: Exploring alternative sources for materials, including local producers or non-traditional suppliers, to mitigate reliance on imports.

• Material Substitution: Utilizing alternative materials that are not subject to tariffs, provided they meet safety and quality standards.

• Advocacy and Collaboration: Engaging with industry associations to lobby for exemptions or adjustments to the tariffs and collaborating with policymakers to find solutions that support the construction industry.

• Efficient Project Management: Implementing lean construction practices to reduce waste and improve efficiency, thereby offsetting some of the increased material costs.

In conclusion, while the intent of the tariffs is to protect domestic industries, their immediate impact on New Jersey's commercial construction sector appears to be challenging. Stakeholders must proactively adapt to this evolving landscape to sustain growth and stability in the industry.