Battle plan: 4 Canadian economists on how builders can survive a trade war

Canada’s construction sector is bracing for a potential surge in material costs and investment uncertainty as trade tensions with the United States continue to escalate.

To better understand how this could impact builders, we spoke with accomplished economists who are warning that tariffs on steel, aluminum, and other goods could disrupt supply chains, weaken the Canadian dollar, and prompt companies to postpone major projects.

While some argue that government spending could offset a private-sector slowdown, there is widespread concern that ongoing tariff threats—and possible retaliatory measures—could cause long-term harm to both economies, heightening the stakes for Canadian builders and policymakers alike.

Julien Karaguesian: Construction has a huge silver lining

Karaguesian, is a Course Lecturer at McGill’s Department of Economics. He also spent 25 years in the Canadian Ministry of Finance and worked at the Embassy of Canada in Washington D.C as Finance Counsellor.

For Karaguesian, the recent announcements by Trump are a clear escalation of trade tensions between Canada and U.S. But he argued it should not come as a shock, as the U.S. has been moving in this direction for decades. And despite the doom and gloom, he believes the trade war could have a silver lining for the construction sector and be an opportunity to reshape Canada’s economy. 

Karaguesian reached all the way back to President George W. Bush’s time as one of the first instances of changing American attitudes toward free trade. Following the 9/11 attacks borders thickened, first for security reasons, and then for economic reasons following the 2008 financial crisis. The American government spent billions bailing out its auto industry, hoping to eat into Canada’s 20% share of the sector. This continued with President Barack Obama, who implemented a Buy American procurement policy.

“Both the left and the right were anti free trade,” said Karaguesian. “You had the rise of the Tea Party movement on the right and the Occupy Wall Street movement on the left. Now Trump has tapped into this.”

He noted that some of this sentiment stems from the early 1980s when the U.S. began deindustrializing their economy and moved that work to other countries. 

“We did the same here,” he said. “Economists promoted it, saying people would move to more value-added jobs. But that didn’t happen. We gutted our rust belt. It was the deindustrialization of the English-speaking West. We lost well-paid blue collar jobs.” 

And then easy access to credit softened the pain of destroying the manufacturing sector, saddling many with crippling debt. Karaguesian said this caused many to become disillusioned with the country and created ripe conditions for Trump to ascend to the presidency. 

“The reaction from voters to traditional Republicans and Democrats was that these people have messed up the economy,” he said. “That’s when Trump enters the scene. He knows Americans in the rust belt and Appalachia have been devastated and then indebted. He ran on an anti-free trade ticket. And then Biden kept most of the initial tariffs he imposed … Trumps actions are an acceleration but shouldn’t come as a surprise.” 

More than the tariffs themselves, which change from day to day and have been walked back multiple times, the biggest issue is the uncertainty. Karaguesian explained companies might consider to relocating to the U.S. to avoid it. He cited Barrick Gold’s announcement that it might cross the border as a prime example of this. 

But when it comes to Canadian construction, there could be a massive silver lining. 

“Any government serious about maintaining Canada’s prosperity is going to have to make up for the shortfall,” he said. “Any government coming to power cannot undertake austerity measures or they will make the economy worse. They will likely run deficits to rebuild the industry.”

Karaguesian predicts federal and provincial money is going to pour into the construction sector, citing Trudeau’s massive high-speed rail announcement as the start of this. There is also talk of expanding pipelines.

He also warned of retaliatory tariffs, which may feel warranted, but could hurt builders. 

“The only way our costs go up is if we do dollar-for-dollar retaliation,” he said. “I don’t think we should do that. We have some time to think and sectors like construction should be lobbying against it. Trump tariffs will be recessionary, but retaliatory tariffs will be inflationary, giving us the worst of both worlds. The negative demand shock from Trump’s tariffs will have to be absorbed by government spending. Candidates have to run on a ticket of rebuilding the Canadian economy and I think that’s a good idea.” 

Another way to fight without retaliatory tariff is shifting procurement to local suppliers when able.  

“If they have torn up our trade agreements that they forced us to negotiate, we are free to take our procurement and only use Canadian suppliers,” said Karaguesian. “That will be good for our side and create less American competition.”

Werner Antweiler: Buying domestic could dampen impacts

Antweiler is an Associate Professor at University of British Columbia’s Sauder School of Business. He serves as Chair, Strategy and Business Economics Division and Chair in International Trade Policy. 

Antweiler believes the dispute could drive up material prices and hurt the Canadian dollar. He urged Canadians to stand up to President Donald Trump, who he believes is ignoring negotiated trade agreements. 

He explained that the trade war is affecting the input price of construction materials directly and indirectly. Major inputs into construction are steel, cement/concrete, and lumber. Steel and aluminium currently will be subject to U.S. import tariffs starting March 12. This can have an indirect impact as Canadian steel is exported to the U.S. and may in turn end up in steel products that are purchased by Canadian construction firms. 

“They in turn will look for cheaper alternatives domestically and from third-country sources, and this may drive up prices,” said Antweiler. “Another indirect effect may come from a depreciation of the Canadian dollar, which makes imports more expensive. A direct effect will also come from Canadian counter-tariffs on U.S. steel and aluminium. So this is very much a repetition of the 2018 trade war that Trump launched against Canada at that time.”

He noted there will be a noticeable effect on steel and aluminium prices, although reshuffling supply chains from imports to domestically-sourced goods may help dampen the impact. 

“Construction firms will be well advised to look into their supply chains and identify alternative suppliers in order to circumvent the tariff impact,” he said. “Companies should examine carefully where their inputs are made—in Canada, in the United States, or in third countries. They should then look to identify alternative non-US suppliers and be ready to shift sourcing to more affordable vendors when the need arises. In some instances, this may also require establishing relationships with these suppliers.”

Antweiler added that in the long term, economies will adjust as companies will look for affordable suppliers. But it requires much effort, and certainly some short-term pain as finding alternative suppliers may not be easy, and these alternative suppliers may be constrained in their ability to ramp up output. Businesses must engage in extensive contingency planning and prepare for the different scenarios that may emerge.

He noted that the situation will become much more worrisome should Trump launch into a full-scale trade war with 25% tariffs on everything. Then Canada will be forced to retaliate in kind, and this will further increase the cost of building materials. 

Antweiler said Trump is treating close friends and allies as if they were enemies for unclear reasons and in ways that will harm his own country. 

“We do not know the true intentions of the US president. One can never take his word at face value, and his utter disregard for CUSMA—a treaty he himself signed—demonstrates that he is not good to his word,” he said. “Canada and the United States have been friends, allies, and good neighbours. This trade war makes no sense and is an affront to our friendship. It is a return to the age of protectionism of the early 20th century, which has caused great economic harm — including the significant contribution to worsening the Great Depression.”

Jock Finlayson: Be wary of retaliatory tariffs

Finlayson is the Independent Contractors and Businesses Association’s Senior Economist and a Senior Fellow at the Fraser Institute. 

He believes the simmering trade war could weaken the Canadian economy and feared retaliatory tariffs could compound its impacts.

He explained that we don’t yet know all the details, except that steel and aluminum will face 25% tariffs as of March 12. On the export, this will hit B.C. mainly due to Rio Tinto’s large aluminum manufacturing plant in Kitimat which does ship product to the U.S.

 Trump postponed his earlier plan to slap 25% tariffs on all Canadian merchandise exports to the U.S. (except oil and critical minerals, which would face a lower 10% tariff).  

“In early March, we should know more about the mercurial, tariff-obsessed U.S. President will do,” said Finlayson. “My best guess is that Canada will face a 10% across-the-board levy on all of our goods exports to the U.S., totalling almost $600 billion per year.” 

 He noted that this would weaken the B.C. economy, mainly by dampening output and employment in export-focused industries (lumber, energy, minerals/metals, agri-food, and all parts of manufacturing).  

“Without Trump’s tariffs, I would have expected the B.C. economy to grow by around 1.5-1.8% in 2025, after inflation,” he said. “With a 10% U.S. tariff in place, growth will be materially lower—less than 1%. The same holds for 2026, assuming the American tariffs remain in place for the next two years.” 

In construction, this means reduced levels of non-residential investment across large parts of the private sector economy.

“Trump’s mad-cap tariff policy will cause many B.C./Canadian firms to postpone investment decisions,” he said. “Some may redirect capital spending to the U.S. to get around the tariffs.  This is negative for the domestic construction industry, particularly companies active in non-residential segments.  

To help offset a fall-off in private sector investment, governments may boost capital spending on infrastructure and other categories of public sector assets.

But Finlayson’s biggest concern was if Canada would retaliate with its own tariffs, a move that he feels could be disastrous. 

“Canadian retaliation, while understandable in the circumstances, will magnify the blow to our economy by raising costs/prices for consumer goods and business inputs,” he said. “This is particularly true given that the U.S. is the number one source of Canadian and B.C. imports.” 

 He called for retaliation to be carefully calibrated so it minimizes harm to Canadians. He said this should include not imposing tariff levies on imports of building materials and other construction inputs. 

Finlayson argued that Trump’s broad tariff strategy aims to boost U.S. manufacturing, reduce trade deficits, and strengthen the economy, but it faces significant challenges. The U.S. manufacturing sector already struggles with a skilled labor shortage, making large-scale reshoring difficult. 

“There is overwhelming evidence from history—including Trump’s first term as President that the kind of tariff scheme Trump favours will harm the U.S. economy by increasing inflation and raising costs for both households and businesses,” said Finlayson. 

Peter Morrow: Stay calm and strategize

Morrow is an Associate Professor of Economics at University of Toronto and is an expert in international economics. 

Morrow stressed that President Donald Trump’s tariff threats have already created confusion for industries on both sides of the border, and construction firms should prepare for significant ripple effects.

“Things are chaotic if everything’s sort of lurching from one stated policy to another stated policy; it’s really unclear what’s going to happen,” Morrow said. “I think the uncertainty is the biggest issue. Companies really don’t know what is going to be coming down the pipeline six months from now.”

According to Morrow, the imposition of tariffs could result in unexpected price fluctuations. In some cases, Canadian firms might actually see costs drop if demand for certain goods in the U.S. falls, freeing up supply for Canada. 

“Because the other buyers are no longer there. It’s like if there’s a housing boom in the U.S., lumber gets more expensive for Canadian builders; this is just the opposite of that,” he explained. “Those American consumers are disappearing. So Canadian timber manufacturers have to sell to someone, so Canadian builders might actually get a better deal.”

However, other sectors could be hit hard by retaliatory measures. 

“If there’s retaliatory tariffs, then anything that gets hit by a Canadian retaliatory tariff that comes from the U.S. will become more expensive,” Morrow said. 

Heavy construction equipment or specialized machinery sourced from the U.S., for example, may become costlier if targeted.

Adding to the complexity, Morrow highlighted how tariffs could disrupt long-established supply chains, particularly in major industries like auto manufacturing. He noted that parts often cross the Canada–U.S. border multiple times before becoming a finished product, meaning repeated tariff payments could “have the potential for chaos.”

The impact on the construction sector, Morrow advised, depends on the extent to which local economies rely on tariff-affected industries. 

“If you build houses in the Okanogan Valley and you think that Trump is going to slap tariffs on Canadian wine from the Okanogan Valley, all those winemakers are going to have a lot less money in their pocket,” he cautioned. That diminished revenue could slow homebuilding or renovation projects.

As for how Canada should respond, Morrow pointed to strategies used in previous trade spats—focusing retaliatory tariffs on politically sensitive goods in the U.S.

Ultimately, Morrow urged level-headedness and careful planning among Canadian builders. While stocking up on certain materials might make sense if tariffs seem likely, he warned against overreacting. 

“This is not smart for any of us. This is just going to cause both sides pain,” Morrow said.