Recent Canada-U.S. tariff escalations may significantly impact construction costs, particularly due to rising steel and aluminum prices. On March 12, 2025, the U.S. imposed a 25% tariff on Canadian steel and aluminum imports, prompting Canada to retaliate immediately with equal tariffs on U.S. steel, aluminum, and various other goods totaling $29.8 billion. These reciprocal tariffs directly raise material costs for Canadian construction, especially affecting structural steel, rebar, HVAC systems, and aluminum components like windows and siding.
Conversely, the U.S. government’s decision to double tariffs on Canadian softwood lumber from approximately 14.5% to 34.45% primarily affects American buyers, driving lumber costs upward in the U.S. market. For Canadian contractors and property owners, however, these increased U.S. lumber tariffs may initially lower domestic lumber prices due to higher local supply availability, potentially reducing short-term framing and construction costs.
Nevertheless, broader global tariffs, particularly from China, are contributing to higher costs of imported fixtures, flooring, lighting, and specialized materials, which remain essential components for Canadian construction projects. China’s imposition of retaliatory tariffs and restrictions has also disrupted global supply chains, making alternative sourcing of certain critical building materials more difficult and costly.
Broader Economic and Market Implications
Beyond direct material costs, tariffs have broader economic implications. Increased construction costs may lead to project delays, reduced profitability, and heightened uncertainty for investors and contractors alike. Higher overall expenses could also drive real estate prices upward, exacerbating existing affordability issues in major Canadian cities.
In response, contractors and property developers might begin exploring domestic or alternative international suppliers. While beneficial in some scenarios, switching suppliers or sourcing locally might require changes to construction plans, additional logistics, and increased project management oversight, potentially further elevating project timelines and costs.
Understanding Insurance-to-Value and Coinsurance Risks
Rapidly changing material costs can create significant challenges for property owners and contractors in maintaining adequate insurance coverage. Most commercial property and builder’s risk policies include a coinsurance clause, typically requiring coverage at 80% to 90% of replacement cost. If rising tariffs push construction costs significantly above policy limits, property owners could face substantial out-of-pocket expenses after a loss.
Standard inflation guard clauses, designed to incrementally increase coverage limits annually, generally range from 2% to 10%. These adjustments rarely cover the volatility driven by sudden tariff increases, which can inflate material prices well beyond standard inflation metrics.
Practical Steps to Ensure Coverage Adequacy
Given this tariff-driven volatility, Canadian contractors and property owners should proactively:
1. Review Coverage Regularly: Ensure your policy accurately reflects current replacement costs, not historical values or conservative inflation estimates. Engage professionals for periodic valuations or cost estimates.
2. Clarify Coinsurance Clauses: Understand the specifics of your coinsurance requirements to avoid unexpected penalties. Adjust your policy limits accordingly to meet required thresholds.
3. Engage Expert Advice: Work with insurance professionals to evaluate your insurance-to-value and explore solutions like higher inflation guard percentages or agreed-value endorsements, which eliminate coinsurance penalties if certain conditions are met.
4. Stay Informed: Regularly monitor ongoing tariff developments and material cost fluctuations to quickly adjust your insurance strategy as needed.
5. Explore Contractual Solutions: Incorporate cost escalation clauses into construction contracts to manage unexpected material cost increases due to tariffs, thereby sharing risk more equitably between stakeholders.
Turning Volatility into Opportunity
Proactively addressing tariff-driven cost fluctuations can position contractors and property owners advantageously. By maintaining updated and precise insurance coverage, Canadian businesses can mitigate financial risks effectively, safeguarding themselves against sudden market volatility. Companies that embrace proactive risk management and adaptive sourcing strategies can also differentiate themselves competitively, offering clients greater certainty and reliability amid turbulent economic conditions.
Take Action: Tariff-induced volatility requires a proactive approach. Contact an Axis Insurance broker today to ensure your coverage accurately reflects current construction realities and provides reliable protection against unexpected cost increases.
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Sonja Blackburn
Senior Account Executive, Construction & Real Estate
I’m Sonja Blackburn, an Account Executive at Axis Insurance, where I’ve dedicated the last ten years to honing my expertise in the insurance industry. With 23 years insurance industry experience I now focus my time on clients in construction, contractors, realty, and professional lines, striding to ensure my clients are informed and well-protected.
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