Tariffs, taxes and labor: What Trump’s second term means for the construction industry

President Trump’s 2024 presidential campaign emphasized “America-first” economic policies, relaxed tax policies and stricter immigration control — all of which have significant implications for the construction industry. While the campaign trail was light on specifics, more details have emerged through a sweeping series of executive actions.

Here’s what is currently known.

Tariffs are coming

Tariffs were a prominent part of Trump’s economic strategy on the campaign trail; one he said would “make us rich as hell.” We’re about to find out.

Trump initiated steps to impose a 25% tariff on all goods imported from Canada and Mexico, effective February 1, 2025. These tariffs are broad, with no product or industry exemptions currently announced. The Trump administration has also signaled plans for a 10% tariff on Chinese goods, with the potential for increases. No timeline has been set for Chinese tariffs.

The U.S. construction industry depends on international suppliers for materials, with Canada being a key source of lumber and steel. While domestic steel and concrete producers operate at relatively high capacity, they may not be able to fully replace imports in the short term, especially for specialized products. Similarly, U.S. lumber producers may have room to scale production, but not immediately — and environmental and sustainability concerns could delay their expansion efforts.  

If critical construction materials are not exempted from tariffs, the cost of essential supplies could rise, leading to higher project costs and potential delays. Construction leaders should prepare for potential disruptions by diversifying suppliers, exploring alternate materials and advocating for tariff exceptions. Without relief measures, tariffs could hinder progress on proposed infrastructure, housing and energy projects that are intended to boost the construction industry.

Companies may need new routes to tax relief

The Tax Cuts & Jobs Act (TCJA), enacted during Trump’s first term, lowered the corporate tax rate from 35% to 21% and introduced provisions like the Section 199A deduction for pass-through businesses. Several TCJA provisions are set to expire soon, directly impacting construction businesses.

1. Bonus depreciation

The TCJA allowed contractors to write off 100% of qualifying equipment and fixed assets immediately. However, that benefit has been phasing out by 20% annually since 2023 and will fully expire by 2026. Reduced bonus depreciation could slow some contractors’ ability to make major investments, affecting cash flow and operations.

2. Section 199A

The Section 199A deduction allows owners of pass-through businesses — such as S corporations, partnerships and sole proprietorships — to deduct up to 20% of their qualified business income. Lowering the tax liability for smaller and medium-sized businesses was meant to level the playing field and make more capital available to invest in operations and equipment. If the deduction expires at the end of 2025 as scheduled, some business owners may need to reconsider their entity structure. They can remain pass-through entities without the 20% deduction or switch to C corporations, which are subject to a 21% tax rate.

Trump has expressed interest in making the deduction permanent and reducing the corporate tax rate to 15% for companies that make products in the U.S. He reiterated this commitment during a virtual address to the World Economic Forum in Davos on January 23. However, no legislative measures have been introduced. Such proposals would require congressional approval. 

Labor and employment issues to watch

Trump’s administration is reviewing and potentially reversing several Biden-era regulations, including rules related to independent contractor classification, overtime pay and workplace safety.

1. Worker classification

In March 2024, the Department of Labor introduced stricter rules for classifying workers as independent contractors. Construction companies that rely heavily on subcontractors must either implement administrative and compliance measures to prove they meet the legal criteria or reclassify workers as employees, which comes with increased costs for benefits and payroll taxes. The Trump administration may reverse the rule, reinstating more flexible standards.

2. Hiring incentives

The construction industry benefits from several federal tax credits that incentivize hiring veterans and disadvantaged workers. The Work Opportunity Tax Credit (WOTC), for example, offers employers up to $9,600 per eligible new hire. The current version of the WOTC is only authorized through the end of 2025. While the WOTC has been extended several times, including by Trump in 2019, he has not indicated whether he will push for another renewal.

3. Overtime pay

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

If enacted, the exemption might encourage employees to work more overtime, which would affect labor costs, compensation structures and payroll practices. Accounting and payroll systems would need to be modified to account for the tax-exempt status, as would withholding and reporting processes.    

4. Immigration reform

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

Implications for the construction industry

Trump has introduced several infrastructure and energy proposals that could boost construction activity. The “Stargate” project is a $500 billion investment in artificial intelligence infrastructure, with $100 billion earmarked for data center construction. “Agenda 47” is an initiative to build up to 10 new cities on undeveloped federal land. Trump’s administration also plans to revisit the National Environmental Policy Act to streamline permitting for highway, power plant and pipeline projects.

These initiatives could generate substantial work for the construction sector, but firms will need to shore up their supply chains, labor availability and compliance practices to benefit.

How Wipfli can help

Every construction project introduces unique opportunities and challenges — and so does every administration. Our team is here with straightforward advice to help you plan, manage risk and win more work. To hear more of our perspective, visit our construction page or contact us to learn more.