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Since coming to office, new US President Donald Trump has announced a series of planned tariffs, which he says will boost US manufacturing and protect jobs. 

But what is the expected impact of these tariffs on the cost of materials, and will this change the values policyholders need to declare to insurers under property damage insurance policies?

What are tariffs?

Tariffs are taxes charged on goods imported from other countries, with companies that import goods from abroad paying these tariffs to the government.

What has changed?

As of early February 2025, Trump has instructed his staff to develop “reciprocal tariffs” for individual countries based in part on trading agreements with the US, including imports and exports.

What is the impact of tariffs on costs?

Tariffs directly increase the cost of imported goods, leading to higher prices for consumers and businesses that rely on imported materials, ultimately impacting inflation and potentially causing disruptions in supply chains, further adding to costs. 

Import tariffs on construction materials and plant and equipment can significantly impact reinstatement costs in several ways:

1. Increased Material Costs

When tariffs are imposed on imported construction materials (e.g., steel, aluminium, timber, cement), the cost of these materials rises. This leads to higher expenses for contractors.

For example, Trump announced tariffs of 25% on steel and 15% on aluminium in 2018, during his first term as president. While he subsequently negotiated exceptions for many countries including Australia, Canada and Mexico, a May 2023 United States International Trade Commission report found evidence for near complete pass-through of the steel, aluminium, and Chinese tariffs to US prices.

Despite the exemptions, tariffs raised the average price of steel and aluminium in the US by 2.4% and 1.6% respectively, according to the US International Trade Commission.

2. Higher Domestic Prices

Even if domestic suppliers do not face tariffs, they may increase their prices due to reduced competition from imports. This can drive up overall construction costs.

3. Supply Chain Disruptions

Tariffs may limit the availability of certain materials, leading to delays and forcing builders to source from alternative, potentially more expensive, suppliers. Existing suppliers may redirect sales to markets with lower tariffs, disrupting current supply chains.

For example, in Canada, exports of steel and aluminium products to the United States decreased substantially as a consequence of the 2018 tariffs.  Based on Statistics Canada data, tariffed Canadian steel exports to the U.S. dropped by 41% between February 2018 (the month before the Section 232 tariffs were announced) and May 2019 (when the tariffs ended). Aluminium exports were down roughly 19% in the year tariffs were in place.

4. Inflationary Effects

As material costs rise, the increased expenses are often passed on to consumers in the form of higher housing prices, infrastructure costs, and commercial building rates.

Some experts suggest that Trump’s new round of tariffs could prompt a wider trade war which could put prices up more generally.

In February 2018, a 20% tariff was implemented by the US on all imported large residential washing machines. According to the Consumer Price Inflation report, consumer prices increased by 12% in the following months.

Capitol Economics, a provider of independent economic insight, said the annual rate of US consumer price inflation could rise to between 3% and 4%.

5. Impact on Economic Outlook

Higher costs, or global trade uncertainty, might lead to budget cuts, delaying projects or reducing worker hours. In some cases, contractors might opt for lower-quality materials to offset increased expenses.

So how might this impact reinstatement costs, and hence declared values?

While we have yet to see what tariffs are to be introduced, what exemptions there might be, and to what extent other countries might retaliate, it is clear from what happened in 2018 and in previous periods of significant tariffs, that tariffs have an inflationary impact. 

As supply chains readjust, contractors could also seek longer construction periods.

Policyholders with a renewal after April 2025 may need to consider carefully their declared values as well as the inflationary provisions in their property damage policies, to ensure that they are adequately covered.