President Trump has spent the first ninety days of his second term in office focused on international trade relationships, particularly “reciprocal tariffs.” Through a series of proclamations and executive orders beginning in February, he has issued—and then in some cases paused—new tariffs on more than 60 countries and multiple industries, including aluminum, steel, and auto manufacturing. WithersRavenel looks at how this will affect our public- and private-sector clients.
Which imports are affected by the new tariffs?
Proclamations 10895 and 10896 of February 10, 2025, impose a 25% tariff on all steel and aluminum articles, excluding those that are eligible for domestic status. For steel and aluminum derivative products, this tariff only applies to the steel or aluminum content of the derivative product, and it does not apply to derivate products produced in other countries where the steel was “melted and poured” or the aluminum was “smelted and cast” in the United States.
Proclamation 10908 of March 26, 2025, imposes a 25% tariff on automobiles and automobile parts. Specifically, it targets the following articles:
- Passenger vehicles, encompassing sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans
- Light trucks
- Automobile parts, encompassing engines and engine parts, transmissions and powertrain parts, and electrical components
An Executive Order (EO) issued on April 2, 2025, specifies a 10% baseline tariff on all imports from all trading partners, excluding Canada and Mexico and except where higher rates are determined for specific trading partners. This tariff went into effect on April 5, 2025.
The EO further outlines tariffs ranging from 11% to 50% on imports from specific trading partners, which include the European Union, the UK, China, India, and Japan. These higher rates would have gone into effect on April 9, 2025, but the President opted to pause this increase, keeping all countries except China at the 10% rate; China’s tariff rate has instead been raised to 125%.
Will the new tariffs affect U.S. prices?
Economists broadly agree that enacting these tariffs will increase prices in the U.S. They point to a report by the U.S. International Trade Commission that shows the tariffs Trump introduced in his first term as president increased the average price of steel in the U.S. by 2.4% and increased the average price of aluminum in the U.S. by 1.6%. Prices fell again when the tariffs expired, suggesting a direct correlation between tariffs and consumer prices.
Companies that import foreign goods are responsible for paying tariffs to the destination country’s government. Companies typically respond to tariffs in one of three ways:
- Absorb the cost of tariffs so consumer prices are not affected
- Increase consumer prices to offset the cost of tariffs
- Import fewer foreign goods
How will tariffs affect public projects?
For public projects that will be fully or partially paid for with federal funding, there is some good news. Federal funding is often subject to the American Iron and Steel Requirement, the Build America Buy America Act, or both. These provisions require local governments to give preference to domestic suppliers during the procurement of certain goods. Compliance with these requirements will allow local governments to sidestep potential price increases due to tariffs.
The situation is more complicated for public projects that will not receive federal funding. According to Crista M. Cuccaro, Teaching Assistant Professor of Public Law and Government at the UNC School of Government, local governments should be prepared for contractors whose products have been affected by tariffs to seek contract renegotiation. She suggests that a contractor may invoke force majeure or other defense clauses to excuse their performance under the terms of the contract. In this instance, it would be up to local government’s attorneys to determine if tariffs qualify as a force majeure event, based on the language of the contract and legal precedent.
- If it is determined that tariffs constitute a force majeure event, then the contractor would need to satisfy the notice provisions outlined in the contract. If the contract allows and the local government desires it, then the local government may also choose to terminate the contract.
- If it is determined that tariffs do not constitute a force majeure event, or the contract does not contain a force majeure clause, then the contractor may be able to seek other defenses to excuse their performance.
Even if the contractor has a valid excuse for non-performance, notes Cuccaro, the local government may want to pursue the contract. This can be difficult to do, however, since competitive bidding statutes may not allow the government to increase the price of the contract. To avoid price increases, they may seek to delay performance, allowing time for prices to drop or for contractors to find alternative suppliers.
If the contractor is unable or unwilling to perform the contracted services at the agreed-upon price, then the local government will have to decide whether to pursue a breach of contract claim or cancel the contract and resolicit under new terms.
What can local governments do to avoid or mitigate the effects of tariffs?
Because local governments often plan to procure goods years before they negotiate contracts or make any payments, they have two options for handling the effects of tariffs on future projects:
- Postpone project initiation until prices have stabilized or decreased. While history would suggest that not all costs are likely to return to their pre-tariff amounts, some costs may come down when tariffs expire or if tariffs are lowered or removed. Additional time may also allow contractors to locate less costly alternative sources of materials. For non-urgent projects, local governments may benefit from waiting.
- Include a cost or price escalation clause in the project solicitation and contract. Cuccaro explains that cost or price escalation clauses give the local government the ability to adapt to changing market conditions without needing to terminate a contract and resolicit for goods if costs rise.
Regardless of which option local governments pursue, WithersRavenel Director of Finance Services Shannon Moore recommends that local governments consider updating their financial forecasts in case prices rise to unprecedented levels. She cites as an example a client who received an asset inventory and assessment (AIA) grant last year and learned last week that their project is going to cost significantly more money than anticipated; as a result, the client will need to evaluate a different financial scenario than the one they had examined as part of their grant application a year ago.
How will tariffs affect private projects?
Private companies planning single- and multifamily residential, commercial, and industrial projects should prepare for three possible changes resulting from new tariffs: more conservative lending and investing, higher construction costs, and changes in market demand.
More Conservative Lending & Investing
Tariffs lead to economic uncertainty, which generally causes investors, including banks, to be more cautious. For a demonstration of this volatility, investors need look no further than the Dow Jones Industrial Average at the beginning of April:
- Before the new reciprocal tariffs were announced on April 2, the value sat at 42225.32
- From April 2 to April 7, the value plummeted to 37226.65
- On April 9, when the President announced a 90-day pause on new reciprocal tariffs, returning all countries except China to the 10% rate, the value climbed sharply to 40608.45
On a more granular level, companies who trade in foreign goods are suddenly considering switching to domestic supplies or relocating their supply chains to places with lower tariff rates, which has a cascade of economic effects on capital expenditures, employment, and taxes. Consumers confronted with the possibility of higher prices are reconsidering large purchases such as homes, vehicles, and electronics, several of which have been directly targeted by tariffs.
All of these sudden and unpredictable changes in decision-making and behavior lead to a level of uncertainty that can cause investors to modify their risk assessments, adjust their valuations of property, and seek safer investments until the market stabilizes.
As a result, real estate developers may find it more difficult to secure loans or find buyers for their properties.
Higher Construction Costs
The U.S. imports steel, aluminum, lumber, and cement for construction. Importers of these products may pass on the increased cost from tariffs to buyers.
In theory, construction contractors can switch to domestic suppliers to keep costs manageable; however, in practice, the situation is more complex. Domestic suppliers will be weighing the value of keeping prices low to attract new buyers versus raising prices to match tariffed amounts and increase profits. The price of domestic steel may also go up if demand for domestic steel exceeds production.
Cost is further complicated by the relationship between domestic suppliers of raw materials and companies that buy those materials to make derivative products. For example, if the increased cost of imported steel causes demand for domestic steel to rise, then companies can expect the cost of domestic steel to rise as well. Companies that use steel in their manufacturing may be caught between more expensive imported steel and equally expensive domestic steel. Manufacturers may choose to cut costs by laying off staff, reducing their overall production and driving up the cost of their own products due to demand exceeding supply.
Changes in Market Demand
The combination of more conservative lending and investing and higher construction costs will likely shift the focus away from some types of private development projects and toward others.
Interest in single-family residential development is likely to wane as potential homebuyers contend with the elevated cost of new construction, rising consumer prices, and high mortgage interest rates.
Likewise, demand for new and expanded retail and office spaces may slow down as consumers tighten their belts on discretionary spending and businesses reevaluate their growth plans.
While multifamily residential properties may become more attractive to households looking to downsize into homes with fewer unexpected maintenance costs or to achieve greater mobility in a changing job market, they may not be equally desirable to developers. According to CBRE, a recent surge in supply may satisfy an incoming increase in demand, but when supply becomes low again, developers will be contending with higher construction costs—costs which may be even more pronounced for multifamily projects than for industrial developments.
By contrast, developers may see a slight uptick in industrial/flex spaces. This typically reflects a need for greater domestic capacity to avoid paying the higher costs of imported goods.
What can private developers do to avoid or mitigate the effects of tariffs?
Unlike local governments, private developers seldom have the option to delay project construction and wait for equipment and material costs to come down. Instead, they have three other strategies to consider:
- Work with contractors to diversify suppliers. It may be difficult—or even impossible—to switch entirely to domestic suppliers, but working with contractors to seek out different sources of equipment and materials or buy materials in bulk before prices spike can help blunt the effect of price increases. As some suppliers look for creative ways to reduce prices, buyers may also have an opportunity to benefit from new or innovative product offerings.
- Create project entitlements but delay the start of construction until stabilization. Given the current state of development entitlements and the time it takes to entitle a project, it may be beneficial to work through the entitlements and permitting process, and then hold until the markets stabilize and a clearer picture of tariff effects is available. Having a “shovel ready” project will allow developers to be at the front of the line when the market appears sufficiently stable. Granted, this is only applicable if the financial structure of the deal supports a delay in entitlements to construction, so there is likely a need to get creative in deal financing as well as deal structure to allow more time for the dust to settle.
- Collaborate with local government to update the entitlements process. In many places, zoning and permitting requirements heavily restrict or prohibit the construction of mixed-use developments or “missing middle” housing like duplexes, triplexes, quadplexes, cottage courts, and low-rise apartment buildings. This inflexibility prevents private developers from adapting to changing market conditions and building smaller, more cost-effective projects that do not require some of the materials affected by tariffs. By working with governments to change these ordinances, developers can open new avenues for private projects while creating opportunities for homeownership and small business entrepreneurship.
Final thoughts on tariffs
Nobody has a crystal ball. While we can look at historical trends and events for ideas about what to expect, the economic landscape in the U.S. and abroad is changing in unprecedented ways. WithersRavenel cannot promise to have all the project development answers—and you should distrust anyone who claims they do—but we can promise to remain your partner for figuring out how to navigate an uncertain future.
Resources for Public Project Developers
- Financial forecasting & budgeting – Shannon Moore, Director of Financial Services
- Funding application & administration – Amanda Whitaker, Director of Funding Services
Resources for Private Project Developers
- Single-family residential development – Nick Antrilli, Director of Project Development, Residential
- Multifamily residential and commercial development – Tucker McKenzie, Practice Area Lead, Site Civil
- Mixed-use development – Kyle Freehart, Director of Mixed Use
- Entitlements – Brendie Vega, Senior Entitlements Manager
- Zoning code reform – Adam Culpepper, Planner