Tariffs And Turbulence: Analyzing Trade Tensions In Canada's Construction Industry

Sweeping tariffs imposed by U.S. President Donald Trump since his return to the White House have caused various levels of uncertainty across the globe. In Canada, resulting trade tensions with the United States have greatly impacted the Canadian construction industry.

Tariffs imposed by the United States, along with retaliatory measures by Canada, have raised costs for essential materials such as steel, aluminum and wood products, affecting procurement strategies, contract drafting and risk management throughout the industry.

This article provides an overview of how the tariff process has unfolded, the various approaches taken by governments, owners, contractors and subcontractors in reaction to the tariffs, and contractual tools available to address tariff-related concerns.

Tariffs: A brief overview

Tariffs introduced in early 2025 marked a significant shift for the Canadian construction industry. On March 6, 2025, the United States imposed tariffs on non-Canada-United States-Mexico Agreement (CUSMA) goods (except for energy and potash) at 25 per cent. Energy products imported under CUSMA faced 10 per cent duties, while certain potash products attracted 10 per cent tariffs. Additional measures followed on March 12, 2025, with steel and aluminum tariffs set at 25 per cent, later raised to 50 per cent on June 3, 2025. By the end of July, tariffs on non-CUSMA goods increased to 35 per cent and, as of August, copper products such as pipes and wires faced duties of 50 per cent.

Canada responded on March 4, 2025, with retaliatory tariffs worth $30 billion on U.S. goods, including construction essentials such as timber, plywood and engineered wood products. The vast majority of these tariffs were lifted on September 1, 2025. Only the tariffs on steel, aluminum and autos have been maintained.

The immediate consequences of these tariffs to the construction industry were higher material costs, material shortages and reduced investment. The tariffs led to increased costs for Canadian purchasers who relied on American construction inputs, leading to shortages in certain materials. The construction industry also received reduced investments as the broader Canadian economy contracted in the second quarter of 2025, largely due to these trade disruptions.

Government responses

Each level of Canadian government has taken their own initiative to respond to the trade tensions.

At the federal level, on September 5, 2025, the Liberal government announced its "Buy Canadian" policy. The Policy on Prioritizing Canadian Materials in Federal Procurement prioritizes Canadian materials in federal procurement, particularly for defence and construction projects exceeding a specified threshold. Initially, the policy will be focused on steel and softwood lumber, but the policy is designed to be flexible and expand to other sectors as needed. Moreover, the Policy on Reciprocal Procurement, which is anticipated to be implemented by spring 2026, will limit non-defence procurements to Canadian goods and services, or those originating from Canada's trade partners. Together, these measures could influence more than $70 billion in procurement.

In Ontario, the government has issued the Procurement Restriction Policy, under the authority of the Management Board of Cabinet Act and the Broader Public Sector Accountability Act, 2010. This policy requires public sector entities to exclude U.S. businesses from new procurements. The restriction applies regardless of procurement value or method, although existing vendor-of-record arrangements are exempt. A "U.S. business" is defined broadly as any company headquartered in the U.S. with fewer than 250 full-time employees in Canada.

Ontario has also announced a "Buy Ontario" policy that will be tabled when the Legislative Assembly returns in October 2025.

Municipal governments have also adjusted their procurement practices, often through bylaw revisions. Measures include prioritizing local suppliers, restricting U.S. bidders and exploring alternative sources, even at higher costs. Compliance with trade agreements such as the Canadian Free Trade Agreement (CFTA) and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) remains an issue, especially for procurements above threshold values. For example, the City of Toronto recently announced a plan to restrict bidding to Canadian companies for contracts valued under approximately $350,000 for goods and services, and under $8.8 million for construction projects. These thresholds are exactly in line with the thresholds established in CETA.

Contractual approaches

Trade tensions have put pressure on contracts that were entered into prior to the uncertainties. Typically, construction contracts have provisions that deal with taxes and duties, force majeure and changes-in-law. The issue is determining whether these provisions give relief.

First, standard form contracts address tariffs and duties in different ways. The Canadian Construction Documents Committee (CCDC) 2 and 14 forms of contract include provisions for adjusting the contract price if taxes or duties change after bid closing. These provisions highlight the importance of distinguishing between duties "in effect" at bid closing and those introduced afterwards. Additionally, the CCDC 5B form of contract ties costs to actual expenditures, with the 2025 version explicitly allowing adjustments for tariff changes. Ontario's OPSS.MUNI 100 also allows contract payments to be adjusted where federal or provincial "taxes" change after tender closing. While our understanding is that tariffs are a form of tax at common law, as they are collected for general revenue, the omission of the word "duties" in the OPSS.MUNI form of contract may introduce unwanted uncertainty. The language also requires that the change be unanticipated and that adjustments reflect the "exact amount" of the tax change, raising practical challenges.

Second, force majeure clauses traditionally cover unforeseen events that prevent contractual performance. Courts have generally held that higher costs alone do not amount to prevention. However, where tariffs or trade disputes make specific materials unavailable, as opposed to being simply more expensive, some contracts may provide relief. Careful drafting is therefore essential. Existing contracts should also be reviewed to see whether force majeure clauses provide any relief.

Third, contracts often contain change-in-law provisions, but their scope varies. Questions arise as to which jurisdiction's law is covered (provincial, federal or international), what notice is required and whether relief includes time, money or both.

In response to the uncertainty arising from the trade tensions, project owners have begun revising procurement strategies to address tariff risks. Request for Proposal (RFP) documents increasingly require bidders to identify material sources, specify applicable tariffs and propose mitigation strategies.

Furthermore, project owners have been forced to balance competing considerations for the purposes of their own mitigation strategies, weighing the predictability of fixed pricing against the flexibility of risk-sharing. They may authorize material purchases subject to tariff increases but must consider pricing, schedules and contingency planning. The overarching duty to mitigate in contracts will also relate to tariffs.

Lastly, the "subcontractor problem" emerges when subcontractors or suppliers fail to lock in prices before tariffs take effect. Global supply chains exacerbate the issue: for instance, elevators may combine Canadian steel with Chinese electronics but be assembled in the United States before being imported into Canada. The import may be tariff-exempt (due to CUSMA); however, the elevator subcontractor may nevertheless have incurred its own costs due to U.S.-imposed tariffs and could attempt to pass these costs along to the contractor. In turn, the contractor requests compensation from the project owner, regardless of contractual entitlement.

Drafting solutions to the "subcontractor problem" may include, for example, price-adjustment provisions triggered by: (a) cost increases of key equipment or materials above a threshold, or (b) cost increases arising from delivery delays caused by shortages. Apart from the black-and-white language in construction contracts, parties will also need to seriously consider practical and commercial resolutions. In these scenarios, it may be advantageous to make payment to contractors for the timely provision of key equipment or materials to ensure the project continues or can be completed.

Key takeaways

Tariffs have effectively reshaped the Canadian construction industry's approach to procurement and contracting. Governments at all levels have adopted policies to prioritize domestic suppliers and restrict foreign participation, while project owners and contractors are revising procurement practices to better allocate risks.

Contract language should be carefully examined to ensure that it covers – or will cover – increased costs associated with tariffs. Ongoing attention to both policy developments and contract terms will help maintain stability as trade conditions evolve.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.