The recent imposition of tariffs by the United States on Canadian and Mexican imports, along with Canada’s retaliatory measures, is set to significantly affect construction costs in both Canada and the US, if a resolution is not found. These tariffs will increase the price of essential building materials and building services equipment, while ongoing skilled labor shortages on both sides of the border—exacerbated by the Trump administration’s intensified deportation policies—will further strain the industry. The combined impact of these economic and labor pressures could lead to substantial cost increases and project delays, with some regions being affected more than others.
Impact of Tariffs on Construction Costs
Regional Effects in the United States
The U.S. has implemented a 25% tariff on key Canadian imports such as softwood lumber and gypsum board—materials that are vital for residential and commercial construction. Since over 70% of these materials used in the U.S. come from Canada, this policy will create cost pressures that will vary by region:
- Northeast and Midwest: These regions are heavily reliant on Canadian lumber and gypsum. The tariffs will lead to significant price increases, making construction more expensive. Builders may struggle to find alternative suppliers, leading to delays and increased costs for homebuyers and commercial developers.
- Southern U.S.: This region has an active lumber industry, which could mitigate some of the tariff effects. However, if other regions shift their purchasing to local suppliers to avoid tariffs, demand could spike, driving up prices even in areas with a strong domestic supply.
- Western U.S.: While Western states import some materials from Canada, they also have access to Pacific Northwest lumber supplies. This could provide a partial buffer, though costs will still rise due to broader national demand shifts.
Regional Effects in Canada
Canada has imposed retaliatory tariffs on U.S. goods, including construction materials and industrial machinery, which will impact costs differently across the country:
- Central and Eastern Canada (Ontario, Quebec, Maritimes): These provinces import a significant portion of their construction materials from the U.S., such as steel, cement, insulation and plumbing products. Tariffs will raise costs for builders and developers, making housing and infrastructure projects more expensive.
- Western Canada (British Columbia, Alberta, Saskatchewan and Manitoba): This region has abundant timber resources and is more self-sufficient in construction materials. However, they do import construction materials such as steel and cement products. Also, interprovincial demand for lumber products could increase as other regions look for domestic alternatives, potentially raising local costs.
Impact of Skilled Labor Shortages on Construction
U.S. Labor Challenges
The construction industry in the U.S. already suffers from a skilled labor shortage, and the Trump administration’s push to deport undocumented workers could worsen this problem. A significant portion of construction workers in the U.S. are undocumented workers, and their removal would create severe labor gaps, leading to:
- Southwest and Southeast: States such as Texas, Arizona, and Florida rely heavily on immigrant labor. Deportations could cause major disruptions, leading to project delays and wage inflation as competition for legal workers intensifies.
- Northeast, Midwest and Northwest: While less reliant on immigrant labor, these regions will still feel the effects of a national labor shortage. With fewer available workers, construction timelines could lengthen, further increasing costs.
Canada’s Construction Workforce Crisis
Canada’s construction sector faces its own labor shortages, largely due to increasing housing demands and an aging workforce. With approximately 700,000 skilled tradespeople set to retire by 2028, the industry is struggling to attract new workers. The impact will vary by region:
- Western Canada (BC, Alberta, Saskatchewan & Manitoba): These provinces are experiencing rapid growth, increasing the demand for skilled labor. The shortage could lead to higher wages and project delays, further driving up construction costs.
- Central Canada (Ontario, Quebec): While facing similar challenges, these provinces have more extensive training programs and immigration strategies that could mitigate some of the labor shortages.
- Eastern Canada (New Brunswick, Nova Scotia, Newfoundland and Labrador, PEI): These provinces also have construction labour shortages, due to many factors including booming residential construction markets, such as Moncton’s and migration of skilled workers to other provinces.
Projected Cost Increases Due to Tariffs and Labor Shortages
If the tariff issue is not resolved in short order and the projected economic and labor trends persist, construction costs could rise substantially across North America over the next couple of years:
- United States: Regions heavily dependent on Canadian materials and immigrant labor (Northeast, Midwest, Southwest regions) could see construction cost increases of 15-20%. Other regions may experience slightly lower 10-15% cost hikes.
- Canada: Central and Eastern Canada, which relies on U.S. imports and is facing labor shortages, could see cost increases of 10-15%. Western Canada may experience 5-10% increases due to higher interprovincial demand for labor and materials.
Conclusion
The dual impact of tariffs and skilled labor shortages is creating significant headwinds for the construction industries in both the U.S. and Canada. While some regions will be more affected than others, overall construction costs are expected to rise, leading to longer project timelines and increased housing and infrastructure expenses. Addressing these challenges will require strategic policy responses, including investment in the workforce training, immigration reforms to bolster labor supply, and efforts to stabilize trade relations to ensure affordable material sources.