In the construction industry, the specter of tariffs looms large, casting a shadow over the sector’s sustainability efforts and economic resilience. The unpredictable nature of tariff impositions, particularly between the U.S. and Canada, has created a maelstrom of uncertainty that threatens to derail carefully laid plans and investments. As David Kelly, global strategist at J.P. Morgan Asset Management, succinctly put it, “The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.” This stark assessment underscores the multifaceted challenges that tariffs present to an industry already grappling with sustainability and technological advancements.
The construction sector, with its heavy reliance on materials like steel and aluminum, is particularly vulnerable to tariff fluctuations. The U.S. has imposed 25% tariffs on Canadian steel and aluminum, with further auto-parts tariffs looming. Canada has retaliated with reciprocal tariffs on U.S. imports, including vehicles and metals. This tit-for-tat approach has created a volatile environment, where the only constant is change. The lack of predictability in trade policy poses significant risks to the financial sector, leading to dramatic daily swings in market value and eroding investor confidence. For Canadian investors, the anxiety is palpable, as portfolios lose value and the job market weakens. Economists warn that Canada could face a recession, further dampening new individual investment flows and stifling economic growth.
Beyond the immediate financial repercussions, tariffs highlight the urgent need for Canada to bolster its economic resilience. Diversifying markets for Canadian goods and services, dismantling interprovincial trade barriers, and enhancing productivity are crucial steps in this direction. The Bank of Canada has long described Canada’s weak productivity growth as an “emergency,” a situation exacerbated by tariff-induced economic instability. Between 1984 and 2022, Canada’s economic productivity declined relative to that of the U.S. from 88% to 71%, with Italy being the only G7 country to fare worse. This decline underscores the need for regulatory reform to drive progress and innovation.
The construction industry, in particular, is hamstrung by an expanding regulatory landscape that stifles innovation and constrains growth. The securities industry, for instance, has been subject to a barrage of regulatory initiatives, both proposed and implemented. This regulatory burden translates into significant and ongoing work for companies, straining capacity across operations, compliance, and technology. Every dollar allocated to compliance is a dollar less available for business growth, product development, or technological innovation. A recent study by the C.D. Howe Institute, The Good, the Bad and the Unnecessary: A Scorecard for Financial Regulations in Canada, highlights that Canadian financial services regulators do not sufficiently consider the negative effects of new rules on competition and innovation.
The regulatory environment also significantly hinders companies’ ability to pursue major projects, particularly those requiring extensive capital investments. Pipeline projects like Energy East and Northern Gateway faced prolonged and prohibitive regulatory reviews, ultimately leading to cancellation. Similar regulatory obstacles impede renewable energy projects, large-scale construction, and technology infrastructure initiatives. These hurdles not only restrict investment opportunities for Canadian investors but also limit broader economic growth and employment in associated industries.
In the face of these challenges, the construction industry must advocate for regulatory efficiencies that enhance economic resilience. Reducing the regulatory burden will enable the sector to navigate uncertain economic environments more effectively, supporting better financial outcomes for all Canadians. As Ian Bragg, vice-president of research and statistics at the Securities and Investment Management Association, notes, addressing regulatory inefficiencies must become a top priority. This is not just about streamlining processes; it’s about fostering an environment where innovation and sustainability can thrive.
The construction industry stands at a crossroads. The path forward requires a concerted effort to reduce regulatory barriers, enhance productivity, and diversify markets. By doing so, the sector can build a more resilient and sustainable future, one that is better equipped to weather the storms of global trade tensions and economic volatility. The time for action is now, as the industry strives to create a more stable and prosperous future for all stakeholders.
