How to Turn the New Tariffs Into Opportunities: A Contractor's Guide

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ℹ ABOUT THIS EPISODE

The recent tariff announcement is creating waves in the construction industry. Join Wade and Stephen as they dive into the implications of these new tariffs.

 
Learn about potential domestic manufacturing booms, practical strategies to navigate immediate changes, and how to position your construction business to capitalize on the new Made in America momentum.

 
Discover insights on price hikes, negotiation tactics, and market stability, and get advice on how contractors can adjust their practices to thrive in this evolving economic environment.

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⌚️ In this episode:
00:50 Impact of Tariffs on Construction Materials
02:45 Strategies for Contractors to Navigate Tariffs
03:16 Details of the Tariff Announcement
05:22 Opportunities and Challenges for US Manufacturing
09:17 Economic Implications of Tariffs
17:24 Practical Advice for Contractors

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

[00:00:00] 

New tariffs are creating a buzz in the construction industry. While some see stormy waters, smart contractors are discovering the hidden treasure. Finally, American manufacturing is getting the boost it needs to compete on our own turf. It's also an opportunity for contractors. Today we're breaking down the April 2nd tariff announcement and the exciting opportunity it creates for your construction business.

Behind the headlines, there's a potential domestic manufacturing boom that could reshape where and how we build in America. You'll learn practical strategies to navigate the immediate changes and position your company to capitalize on the new Made in America momentum that's already driving factory construction to record levels.

Wade Carpenter: This is a Contractor Success Forum. I'm Wade Carpenter with Carpenter Company CPAs alongside Stephen Brown with McDaniel Whitley Bonding and Insurance.

Stephen, what are you hearing about tariffs that might affect the construction industry? 

Stephen Brown: Well, just, just the normal things, about,steel pipe prices,going up,the [00:01:00] drywall, issues out of, Mexico and, China. how it affects residential versus commercial contractors are different. There's always the steel and aluminum issues in the countries that we import most of those materials through.

So, that's what I'm hearing out there and, it's just, it's amazing to me that this announcement came out April 2nd and how much has already changed on April 9th today of the podcast. As far as these, tariffs, the negotiations that are taking place behind the scenes, what it's doing to the economy, what it's doing emotionally to everyone, dealing with the ups and downs of the, of the market, because of the tariffs.

Wade, what are you hearing right now?

Wade Carpenter: Yeah, I think a lot of people sort of went into panic mode. And I think maybe some of the media hyped up on that. But you know what I'm seeing there, there's this price hike trampoline effect. Imagine like your, these tariffs are like jumping on [00:02:00] a trampoline with your toolbox. Initially everything's gonna bounce way up.

Prices might rise, but contractors that maintain some kind of balance and timing and know how to navigate these waters, they're gonna find themselves being able to navigate it better when you accept the fact that yes, things may change. I think we've already, we're gonna talk later about how many people have already come back and offered to negotiate down their country's imports.So I think we could actually get some reduced costs from this.some of these material supplies that we pay and those kind of things. So I think there's some unintended consequences here, and it may not be as bad as we think.

Stephen Brown: Right. Well, I think this is a timely topic for our listeners because first of all, understanding the impact of tariffs and the prices that go into your construction products, is vital for you to keep track of cost and bidding properly. And we also need to talk about [00:03:00] techniques that our listeners can use to help stabilize the uncertainty of what these tariffs might do for their pricing.

Wade Carpenter: Yeah, well, let's just talk in general about what they did. Basically what they did was a 10% universal tariff on all imports. But there are some countries that are,it was amazing to see some other countries were over a hundred percent tariffs on imports and things like that. And what they did though was like reciprocal tariffs on 60 countries, ranging from 11% to 50%. And some of 'em were showing like, 88% tariff. Well, they only did about 50% of what they were doing, but it's definitely brought some people back to the table in negotiating with America. 

And there's some specific surcharges on things like Chinese goods and all that. but a lot these countries are now panicking, and I think that was sort of like some of the intended effect is that, hey, let's balance the, the trade [00:04:00] imbalance that we've seen over the last several years. You got any thoughts on that?

Stephen Brown: Well, It, it is so unequitable. The tariff charges that the different country's charges. I totally get that. And you either negotiate 'em or, from a position of, of strength,of what we have to export into their country and,balance that of, of our needs of their product here.

And what the exporting of their products means to their economy as well as ours. Because we have to look after our selves, but we also don't wanna tank the economies of everyone else we depend to work with, and it seems to me like this is a, a natural shakedown of the process.

Wade Carpenter: Yeah, absolutely. And again, I think a lot of it was panic. We have seen some spikes in things like steel, aluminum, but it's not an immediate effect. And I think it's more panic than anything. A lot of people were talking about how much lumber was gonna be going up [00:05:00] and I know Trump said, well, we could harvest our own 'cause a lot of the lumber apparently comes from Canada.

Stephen Brown: Mm-hmm.

Wade Carpenter: I know you, you had talked about, drywall, that kind of stuff, coming from Mexico or wherever and or China. I know you had talked about some of the quality coming outta China, so I think maybe it will spur some of the growth here in the United States as far as maybe some vertical manufacturers or contractors, like harvesting their own lumber. I don't know.

Stephen Brown: It's also giving the United States the ability to up our game and the quality of the products that we produce, we use, and export. I think it's great. And when you talk about fear, Wade, you think about situations of there being a storm coming to yourcity and how there's just a rush on everything at the grocery store.

 Same with covid situations. People panic and they, they overreact. What else are you hearing about, these tariffs [00:06:00] and when things might settle down a little bit from all these trades? What are the next steps?

Wade Carpenter: Well, I think that's a good analogy. Like what you talk about,price of groceries or things like that. If you think about a, like your restaurant menu and a covid, we had some prices, we couldn't get certain food or whatever. And just same thing here. It's if you had a restaurant and you had a menu of your construction services, and your, like the restaurant, your cost went up, you had to pass it on to the customers. 

Well, that's the same kind of thing. The smart restaurants, they sort of redesigned. They didn't just use the same menu, at least the smart ones. They would actually change the menu up and then change the prices. So you know, it's like, can you get better margin?

Can you do things like maybe, doing the upsells or, things like that? So that they realize that there's some additional value. The smart contractors I think are now thinking, how we can sort of reprice their menu of [00:07:00] services.

Stephen Brown: I really like that restaurant analogy. It really hits home with the product that you put out and the cost incurred to put out that product. What else do you think our listeners need to be aware of, as these tariffs make the economy uncertain and affect our pricing?

Wade Carpenter: Well, I think there are probably gonna be some short term effects. You may want to front load the materials. I know they've already gone into effect and some of them have been postponed a little bit, but can you go ahead and front load the cash flow on that and go ahead and buy and secure some of that before--

Stephen Brown: It's certainly a prime opportunity to talk to the owner of your project and let 'em know the stress that you're going through. Will they work with you on that? Will they allow you to lock down those materials or share in the risk? You certainly need to go into action there if you haven't already.

And in the future going forward, there's, putting, escalation clauses in your contract,that have [00:08:00] usually been there, for example, highway paving. There's a fuel escalation costFormula in the contracts.

But there's other key items that are so mandatory to the design of the project that you have to build, that depends totally on the supply chain. And your owner has to understand that, and work with the architect to come up with alternative materials and products, and still try to get the product that the owner wants.

Wade Carpenter: Yeah, and I think you hit the nail on the head on these escalation clauses. I think a lot of people learn from Covid. You get in these fixed price type contracts, or guaranteed maximum price or something like that. Switching to more of a cost plus,and realizing these things could affect your bottom line. But again, I think when all is said and done, it's not going to change as much as we think it is.

Stephen Brown: Well, I mean, the first thing that pops to my head, Wade, is the equipment. What do these tariffs do for the overseas equipment that we rely [00:09:00] on? The pricing? We just finished a podcast on you're purchasing versus leasing equipment. It's a big moving part, isn't it? Literally.

Wade Carpenter: Yeah. That actually reminds me of, actually, yesterday I was talking with one of my clients. They're sort of restructuring right now and they were getting rid of some trucks that they really didn't need. And it was like, okay, we can sell it and put like pre tariff sale price on it and probably jack up the price a little bit.

But I think he was kidding. But,just think about it. You know what's gonna happen if you say, okay, my bid's good for 60 days? Should you say my bid's only good for 15 days, or something?

Stephen Brown: Yeah. And if, you're sitting on a piece of equipmentthat's held together by bailing wire and you know you're gonna have to do something on a project, now might be the time that you wanna to move to get that equipment and, and the folks with excess equipment might move that as well.

It's always good for the, economy and the, general rotation of, equipment in and out of the country,importing, [00:10:00] exporting equipment and, the equipment that's, manufactured here locally, it's always a good start,to see construction equipment moving in my world.

Wade Carpenter: I think I wanna talk about what is gonna come out of this. 'Cause I think a lot of people will talk about, what's the purpose of these tarrifs? The purpose is designed to basically boost US production.

And, we have actually seen, they've announced a lot of manufacturings coming from some of these. So I think we've seen record levels of factory construction. so that is actually helping the construction industry. There's been $21 billion per month in construction factory spending month over month since late 2024. So, other things like bringing some of this manufacturing to steel and auto, those kind of things,it is gonna stimulate some of that economy and, might actually bring some of the steel prices down. that's a great point. 

Like I said, the domestic supply chain, as we talked about the lumber or whatever, people are starting to maybe [00:11:00] build some of this stuff here. 

And sort of pivoting from all this, we have seen the week since they announced this stuff, that several countries have come back and offered to reduce their own tariffs on the imports.

So, Cambodia for instance, offered to drop their tariffs on US goods from 35% to 5%. Several of 'em like Vietnam, Thailand, they're negotiating new terms. India in particular, they were willing to cut tariffs over 50% on US imports. 

I think there's gonna be a different effect than a lot of people realize. A lot of them's like, okay, well let's open some doors, let's talk about it. They're saying we're not gonna retaliate. Let's actually, negotiate something here. We've seen some of that.

Stephen Brown: Another interesting thing about the tariffs that I've noticed is that the federal contracting officers,originally were saying we have to keep your bid open for us for six months,for us to review it [00:12:00] and, make sure the funding's in place and we're ready to go.

And now there's so many construction shovel ready projects, from a federal standpoint, they're moving faster. And I think the tariff was just a great impetus toward making that happen.

Wade Carpenter: Yeah. And again, I think there's been some other developments like, I think they're spinning up the Keystone Pipeline thing that just completely got shut down on day one of the Biden administration. So that's gonna be more construction jobs.

But you know, even before that the tariff and all this stuff has spurred some things like crude oil prices have dropped significantly to basically multi-year lows.

 You can see it at the pump. I went and got gas yesterday and it dropped quite a bit. So, it's already dropped some and they're forecasting lower gas prices.

The economists are actually predicting additional rate cuts in 2025, which means lower borrowing costs for home buyers or businesses that [00:13:00] want to constructoffice buildings.

Stephen Brown: It seems like exactly that the downside in the marketplace is just coming from overreaction and fears of situations that they don't know how it's gonna play out. That'll be nice in the coming weeks to see how that settles down and how the market reacts to it.

Wade Carpenter: I had looked into what these tariffs are gonna do and they are actually gonna raise some revenue. And I've seen different analysis of it, but right now we get like less than 1% of our Federal revenue from tariffs, something like that.

And so, it was pretty interesting to see like individual income taxes are right at half of the revenue that comes in. It was like 33% of payroll taxes. That's like social security, Medicare, those kind of taxes on payroll. Corporate taxes were only like less than 10%. And these tariffs are expected to raise 150 to [00:14:00] 300 billion in additional revenue.

So that rise in revenue could be like, 6% or 7% of the federal budget. It could boost all that. 

Those 

Stephen Brown: numbers are just mind boggling to me, Wade.

Wade Carpenter: Yeah.

Stephen Brown: We're so used to, at our age, of the taxes funding everything. That's what we're led to believe, isn't it?

Wade Carpenter: Yeah. And, I don't wanna speculate, but you know, in Trump's first term, he had several cuts. The Tax Cuts and Jobs Act was historic for businesses. And actually, what's running through the, right now, the budget reconciliation bill is supposed to extend all that. Which could help on taxes. But I think there's some additional tax cuts that he wants to make.

And if we're replacing this much revenue, I think there's a position to where we can reduce what we need to take in from individual income taxes. Plus, I don't wanna get into all this stuff, but like DOGE is reducing the size of federal government. So I do see that there's gonna be opportunity [00:15:00] to not only, maybe send some of these- we did those rebates back in, the first term. And they did spur the economy, and I could see some of that happening again.

Stephen Brown: It's exciting. What do you think it's gonna do for inflation? You were mentioning interest rates may be coming down. Do you have any, feeling on, seeing those inflation indicators stabilizing are going down beside gas prices and interest rates?

Wade Carpenter: Well, we've already seen some of that. I hate to use the one that it's been all the talking point, but the price of eggs has already dropped considerably. Those kind of things that, you know, the staples that we all live with, we're already seeing that. And, I do see some of the, the manufacturing, that kind of stuff.

Yeah. There's a lot of people like, hey, the federal government for federal jobs were getting cut, and people are gonna be outta work and we're gonna have a recession. We've said it before, a recession can be a self-fulfilling prophecy. And those people that understand that, hey, this is [00:16:00] going to help-- unions, they're actually optimistic about what this is gonna do. Not that I wanna promote the unions, but you know, they're like, hey, this is bringing jobs back. 

And we haven't seen any inflationary spike. the material prices are already factored in some of that stuff, so we're not seeing any of that right now. It's just, again, it's early, we never know. But, I think this is gonna be a lot more positive than people realize.

Stephen Brown: What are some actions? We were just talking briefly about things our listeners need to do to maybe tighten this, situation up and thrive in this tariff situation. tighten up their purchasing, their communication with the owners. Taking advantage of, negotiating better terms 'cause of the uncertainty. We talked about that. 

We talked about the escalation clauses in the contract. We talked about how long your bid should be out there. How long is your bid good for? Based on the fact that you also might need to [00:17:00] negotiate in the contract, the immediate purchase price of a commodity that you need for that construction project, in the form of, steel,glass, any key component.

There's just more negotiation going on than ever, right now. And I think that's the key to stabilizing these prices. 

Wade Carpenter: Yeah. Those are all great points. And again, just think about some of the things that are, just even the fuel. So I've got some contractors that spend tons of money in fuel, and I, I know in years when they were bouncing up and down, when they really bounced up, a lot of our contractors, sometimes they look up and say, hey, how, how did I spend that much in fuel?

So I think that kind of stuff as well as interest rates, it's, gonna be a lot better than most people realize.

Stephen Brown: Sure. And, you know, we talked about Profit First for Contractors. When we talked about,taking those JobEx expenses, and as these prices fluctuate, seeing what the key [00:18:00] fluctuation for each particular project, and watching that even more closely. And what, you allocate toward those expenses is key.

 It sounds like common sense, right? But sometimes you get busy and it's just hard to see the forest from the trees. Focusing on that right now, I know most of our listeners are already doing it.

Wade Carpenter: Yeah. Well, I guess, to sort of bring this to a close, I would say don't pay so much attention to the stock market crash. Well that was initial reaction. Then it's likebounced back up. And so again, I think some people don't realize that this is, more panic than anything. 

I don't want contractors keep, stick their head in the sand and there are probably going to be some short term fluctuation, those kind of things. So be aware of it and, make adjustments accordingly. But don't make panic decisions. What I would say,

Stephen Brown: Right.

Wade Carpenter: And just like the menu analogy that I was talking about with the restaurants earlier. Do you need to change the way you're doing things or pricing [00:19:00] things and approaching your bids?

Stephen Brown: Yeah. Well, it certainly makes sense.

Wade Carpenter: Okay. Well, with that said, I think we probably need to bring this one to a close. I appreciate, Stephen, I appreciate your input on all this, and if our listeners have any thoughts or comments. please drop 'em in the, notes below.We appreciate it if you'd consider like share a, subscribe, do all that stuff that really helps us out.

We do this every single week and we hope to see you on the next show.