During the first three months of his second term in office, President Donald Trump imposed dozens of tariffs on goods imported into the United States. The President’s public statements — both during his campaign and after taking office — indicate that tariffs will be a prominent feature of United States’ trade policy during his Presidency, to an extent not seen in the U.S. since the Smoot-Hawley Tariff Act of 1930 imposed tariffs on tens of thousands of imported goods during the Great Depression.

The tariffs imposed by Trump during his second term affect goods imported from countries that are major suppliers to the U.S. construction industry. The President’s use of tariffs to date indicates that existing tariffs will be subject to change and that new tariffs may be imposed in the future. This article is intended to assist U.S. construction industry participants in understanding tariffs and adjusting to a business environment in which tariffs will be a cost of doing business for the foreseeable future.

Simply stated, tariffs are taxes imposed by a country on the goods imported into that country. Although the tariff is paid by the company that imported the goods, the importer generally will include the amount of the tariff in its price to its buyer, who will likewise pass on the cost of the tariff to its buyer, and so on, until the amount of the tariff is ultimately paid by the end users of the imported goods. The economic effect of the tariff is to make foreign goods more expensive and (in the process) make the prices of competing goods manufactured domestically more attractive to buyers. 

Once a tariff is implemented on certain goods, the resulting price increases can create problems for sellers who are contractually committed to sell those goods at prices that were negotiated before the tariff was imposed. The issue is whether the seller can include the cost of the tariff in its price to its buyer. If not, the seller must absorb the cost of the tariff, which can cause the sale to become unprofitable for the seller.

Whether the seller can pass along the cost of the tariff to its buyer is governed primarily by the language of the contract between the buyer and seller. Generally speaking, if the contract specifies a sum as the price, the seller is obligated to sell to the buyer at that price, unless there is language in the contract stating that the price is subject to change if the seller’s cost of performance increases due to certain events, such as tariffs that are imposed after the contract is executed. 

Among construction contractors, most commercial construction contracts and purchase orders are prepared by the buyer, whose primary objective is to avoid paying more than the specified price. To that end, the buyers’ form contracts frequently state that the purchase price includes all applicable taxes, including tariffs, such that the seller cannot pass the cost of the tariffs onto the buyer. If the seller wishes later to include in the purchase price the cost of any tariffs that are subsequently imposed upon the imported goods, the seller will need to include language in his contract to that effect.

Where subsequently-imposed tariffs substantially increase a seller’s performance, the buyer and seller will sometimes negotiate a resolution in which the buyer bears some of the cost of the tariff, particularly where (for instance) the buyer and seller do a lot of business together and they desire to maintain their good business relationship.  The legal principles discussed in this article do not preclude such a negotiated resolution—instead, these principles operate when the parties cannot negotiate a resolution. 

Riley Bennett Egloff LLP offers legal services to owners, contractors, and suppliers in the construction industry, including the review and negotiation of construction contract terms. If you have any questions about how tariffs are affecting your business, please contact the author or another member of our construction services team.

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Posted on April 9, 2025,  by Kevin N. Tharp