Four ways construction can navigate Trump’s tariffs

Unless you’ve been hiding under a rock for the past few weeks, you won’t have escaped the use of the word ‘tariff’.

US president Donald Trump’s imposition of tariffs has become the mainstay of the news around the world. From Apple and Samsung shifting production of phones to India, to Boeing having at least nine countries involved in its supply chain. Even the price of pineapples is set to be impacted.

But what are the implications for construction? Will there be a significant effect on the industry, and how should contractors and employers prepare?

The direct impact is a blanket 10% on everything from the UK. But much of the discussion on the impact will centre around the response to that 10%, and the uncertainty caused by it.

The supply chain is likely to be affected, particularly as markets react to changes in costs. A significant impact could result from the fact that China produces so many of the materials upon which the UK relies, including around 20% of construction materials. Price fluctuations of these materials may have an impact on UK construction.

Anecdotally, an issue experienced by a colleague in Ireland is the unexpected outcome of China dumping a lot of cheap steel on the UK and European market, resulting from its being unable to sell it to the US. Employers may then seek to claim the amounts gained by contractors because of adjusted material pricing. A problem few could predict!

Here are four ways construction can prepare itself to navigate Trump’s tariffs:

Being proactive will be one of the key qualities needed: this was a lesson many learned from covid. Ensuring you have good and accurate records of changes in costs will help ensure you can correctly identify them. This sounds like common sense, but many construction disputes result from poor record-keeping. Negotiating fair contract terms early should ensure you avoid disputes or claims later in the project.

One of the lessons from covid was the importance of communication and collaboration. Where possible, communicate early with the other parties in the project. While things are still not perfect, there is evidence that risk dumping has been less prevalent post-pandemic than before it. This has been aided by measures such as the latest JCT contracts and the government’s Construction Playbook actively encouraging collaboration.

By working proactively with the other parties in the project, the risk of conflict can be reduced. It’s arguably far harder to be in dispute with someone you have spoken to and developed a working relationship with than with someone you don’t know. Keeping communication open can help avoid even the most complex of disputes.

If possible, look at your contracts and either ensure they are set up for success from the outset, or adjusted for success. One option is to include a ‘fluctuation provision’ in the contract. Such provisions seek to help parties manage the risk of cost fluctuations across a project’s lifecycle.

In the latest JCT form, there are three sets of provisions: A, B or C. The language of the provisions is quite complex, but allows for adjustment according to some different potential changes in the contract sum:

Similarly, option X1 in NEC allows for price indices to be included. However, if used, their complexity may create extra work for cost consultants and quantity surveyors in calculating the amounts due.

Linguistics in contracts may need careful handling. Some contracts may refer to changes in tax or duties, but not include ‘tariffs’, as they could be considered separate to taxes and duties. Even a clause that includes changes to tariffs would not cover the knock-on impacts where they are unchanged in the UK, but supply chains are disrupted due to tariffs or reciprocal tariffs elsewhere in the world.

The same is true of any widely drafted ‘change in the law’ provision. Careful amendments and adjustments, and consideration of whether they have actually been triggered, will be crucial.

Uncertainty is usually a cause for concern in construction. However, it is nothing new to the UK market. Recent years have seen Brexit, covid, war in Ukraine and more. The effects of the tariffs are likely to be another in a long line of challenges affecting the supply chain. The industry has proven itself to be adept at adapting, so this should hopefully be no exception.  

Ultimately, much will depend on the parties’ approach to risk. A pragmatic, collaborative and communicative approach is far more likely to lead to successful and profitable projects, which is ultimately what everyone wants. Early intervention to swiftly resolve any disputes that arise will be key.

Chris Kirby-Turner is a partner at Thomson Snell & Passmore.