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Blueprints for Success: Tariffs, Taxes, Labor, and What It Means for the Construction Industry

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During the 2024 presidential campaign, President Trump focused on an "America First" agenda, emphasizing economic policies, tax reductions, and stricter immigration controls—key issues with significant impacts on the construction industry. While the campaign trail provided limited specifics, more details have emerged through a sweeping series of executive actions.

 

Here is what is currently known.

 

Tariffs are Coming

Tariffs played a central role in President Trump’s economic strategy during the 2024 campaign. Now, the impact is about to unfold. He initiated steps to impose a 25 percent tariff on all goods imported from Canada and Mexico, effective February 1, 2025. These tariffs are broad, with no exemptions announced for any product or industry. The administration has also signaled plans for a 10 percent tariff on Chinese goods, with the potential for increases.

 

The U.S. construction industry relies heavily on international suppliers for materials, with Canada serving as a source of lumber and steel. While domestic steel and concrete producers operate at relatively high capacity, they may struggle to fully replace imports in the short term, particularly for specialized products. Similarly, U.S. lumber producers could scale up production, but not immediately — factors such as environmental and sustainability regulations could slow expansion efforts.

 

If construction materials remain subject to these tariffs, costs for essential supplies could rise, driving up project expenses and causing potential delays. Construction leaders should prepare for disruptions by diversifying suppliers, exploring alternate materials, and advocating for tariff exceptions. Without relief measures, tariffs could stall progress on proposed infrastructure, housing, and energy projects meant to strengthen the construction industry.

 

Companies May Need New Routes to Tax Relief

The Tax Cuts & Jobs Act (TCJA), enacted during President Trump’s first term, significantly lowered the corporate tax rate from 35 percent to 21 percent and introduced provisions such as the Section 199A deduction for pass-through businesses. With several key TCJA provisions set to expire soon, construction businesses will face direct financial impacts.

 

Bonus Depreciation

Under the TCJA, contractors could immediately write off 100 percent of qualifying equipment and fixed assets. However, this benefit has been phasing out by 20 percent annually since 2023 and will fully expire by 2026. The phase-out of bonus depreciation may hinder capital investments, straining cash flow and disrupting operations for many contractors.

 

Section 199A Deduction

The Section 199A deduction allows owners of pass-through businesses, such as S-Corporations, partnerships, and sole proprietorships, to deduct up to 20 percent of qualified business income. Intended to reduce tax burdens for small and medium-sized businesses, this provision aimed to create a more level playing field and free up capital for investment in operations and equipment. If it expires as scheduled at the end of 2025, business owners may need to reevaluate their entity structure. They can continue as pass-through entities without the 20 percent deduction or convert to C-Corporations and are subject to a 21 percent tax rate.

 

President Trump has expressed interest in making the deduction permanent and reducing the corporate tax rate to 15 percent for companies manufacturing products in the United States. He reiterated this commitment during a virtual address to the World Economic Forum in Davos on January 23. However, lawmakers have not introduced any formal legislative measures. Any such changes would require congressional approval. 

 

Labor and Employment Issues to Watch

The administration is reviewing and may reverse several Biden-era regulations, including those affecting independent contractor classification, overtime pay, and workplace safety.

 

Worker Classification

In March 2024, the Department of Labor implemented stricter rules for classifying workers as independent contractors. Construction companies that rely heavily on subcontractors must either comply with administrative requirements to prove legal classification or reclassify workers as employees, increasing costs for benefits and payroll taxes. The administration may roll back this rule, restoring more flexible classification standards.

 

Hiring Incentives

The construction industry often benefits from federal tax credits designed to incentivize the hiring of veterans and disadvantaged workers. For example, the Work Opportunity Tax Credit (WOTC) offers employers up to $9,600 per eligible new hire. While President Trump extended the WOTC in 2019, he has not indicated whether he will push for another renewal.

 

Overtime Pay

During the campaign, President Trump proposed exempting overtime income from federal taxes. However, this proposal has not been formalized into a specific policy or executive action.

 

If implemented, the exemption could incentivize employees to work more overtime, impacting labor costs, compensation structures, and payroll practices. As a result, employers would need to modify their accounting, payroll, withholding, and reporting processes to accommodate the change.

 

Immigration Reform

Immigrants account for about a quarter of the U.S. construction workforce, according to the American Community Survey. President Trump’s proposed immigration policies, including mass deportations and stricter border enforcement, could reduce the talent pool and exacerbate labor shortages. Additionally, enhanced compliance requirements for verifying worker eligibility may increase hiring costs and delay onboarding.

 

Implications for the Construction Industry

President Trump has unveiled several infrastructure and energy proposals that could boost construction activity. The “Stargate” project includes a $500 billion investment in artificial intelligence infrastructure, with $100 billion allocated for data center construction. “Agenda 47” proposes developing up to 10 new cities on federally owned land. Additionally, his administration plans to revisit the National Environmental Policy Act (NEPA) to streamline permitting for highways, power plants, and pipeline projects.

 

These initiatives could create significant opportunities for the construction industry, but firms must strengthen supply chains, secure labor resources, and ensure regulatory compliance to capitalize on the potential growth.

 

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