Overview
Today, in a 6-3 decision, the United States Supreme Court, in an opinion by Chief Justice John Roberts, ruled that President Trump violated federal law when he unilaterally imposed tariffs on foreign countries under the International Emergency Economic Powers Act (“IEEPA”). This carries potentially significant implications for the construction industry.
The Supreme Court’s Ruling
The Court rejected the administration’s argument that IEEPA’s grant of authority to “regulate … importation” during emergencies includes the power to impose tariffs, in short, because the Act does not clearly state it.
The result is that country-specific tariffs, like the average effective tariff rate of 37.4% on Chinese imports, and product-specific tariffs, like the 50% tariff on steel and aluminum, have been deemed illegal under IEEPA.
Whether those tariffs end moving forward, and for how long, remains to be seen, as President Trump has indicated he will seek to maintain or even increase tariffs under alternative laws or mechanisms. Another critical open question is what would happen with the more than $134 billion in tariffs the government has already collected, with Justice Kavanaugh writing in his dissenting opinion that any refund process “is likely to be a mess.”
The Changing Tariff Landscape for Contractors
Prior to this ruling, tariffs had created substantial challenges for contractors across the country, mostly due to the rising price of project materials. Particularly volatile materials included aluminum, steel, copper and brass. Canada, for example, which faced a 35% tariff, accounts for approximately 69% of all lumber and 25% of iron and steel imported into the United States.
Those in the construction industry handled these rising prices in various ways. In New York, industry data shows that 25% of construction firms raised bid prices, 33% passed most or all tariff costs on to project owners, and 42% accelerated purchases in anticipation of further price increases. For many, these added costs chipped away at margins.
Whether the ruling results in an immediate, or any, downward pressure on material prices, and the timeline on which that occurs, remains to be seen. The implications of the ruling will play out over the coming days, weeks and months, and will be affected by any federal and state responses, which we will continue to monitor.
In the interim, however, contractors can and should begin considering, among other things: (1) how a rapid change in material prices would be treated under their existing contracts, including price escalation and force majeure provisions, and (2) how they will address any resulting price uncertainty moving forward. It will be important to remain proactive to navigate this latest industry change.
