Features

SMU Community Chat: Construction at risk from tariffs, immigration policy, federal cuts
Written by Stephanie Ritenbaugh
June 26, 2025
The outlook for the construction sector is hazy as building firms face risks from tariffs, immigration policy, and federal spending cuts.
“Contractors say that they’re still busy, but their order books have gotten a lot softer or a lot more uncertain,” said Ken Simonson, chief economist for The Associated General Contractors of America (AGC).
He noted that many universities and hospitals are particularly vulnerable as questions remain over funding prospects.
Speaking on an SMU Community Chat Wednesday morning, Simonson said it’s not just about the cost of building materials, but if tariffs are also “hitting the inputs that they have, are other countries going to be retaliating against their products – either with their own tariffs, non-tariff barriers, or just consumer boycotts, as we’ve seen with the Canadians pulling American liquor and wine off their shelves.”
For instance, the drop in tourism to the United States in response to government policies affects resorts and entertainment facilities, who “may pause on their construction plans until they get clarification.”
A couple of deadlines are coming up on the tariff front. Trump and the European Union agreed to delay the placement of 50% tariffs on EU goods until July 9. And July 8 marks the end of the 90-day pause on the “reciprocal” US tariffs Trump imposed on nearly all other countries.
However, in a briefing Thursday, Press Secretary Karoline Leavitt said it’s up to Trump whether those deadlines could be extended yet again.
“Perhaps it could be extended, but that’s a decision for the president to make,” Leavitt told reporters on Thursday.
Simonson said the uncertainty surrounding trade policy means a lot of property owners are holding off on giving contractors a green light to get to work.
In addition, deportations and immigration restrictions have led to work sites being raided and employees afraid of reporting in.
“Construction is vulnerable because about 34% of construction craft workers are foreign born, according to Census data from 2023. That’s nearly double the all-industry rate,” he said. In states places like Texas, California, New Jersey, Maryland, and Washington, D.C., those rates are even higher.
But immigration policy isn’t just hitting work places. It’s also hitting an important driver of construction activity – higher education.
“My candidate for the biggest drop-off in construction spending is probably higher ed.,” Simonson said. “It’s doing quite well as of April, but the challenges are numerous. First, there’s the demographic cliff that’s been talked about for years of ever shrinking high school senior classes is about to reduce the pool of potential college freshmen.
“And the number of foreign students coming in is being hit hard by the administration denying visas or threatening deportation,” he said. “I think universities and colleges are finding less prospect for growing demand for dorms and classrooms. They’re also being hit very hard in terms of cancellation of grants and contracts for research facilities and denial of access from foreign researchers and professors.”
Other building categories
Non-residential building had been driven by semiconductor facilities, but there are signs that those projects could be slowing, due to a combination of both completions and delays.
Simonson pointed to Intel delaying its semiconductor manufacturing project near Columbus, Ohio. The project, originally expected to cost $20 billion and be finished this year, has risen to $28 billion and is expected to be completed in 2030-31.
Meanwhile, Taiwan Semiconductor Manufacturing Co. plans to start production at its new Arizona facility this year.
“Between the slowdowns and the completions, this category … of construction is now down 10% instead of up at high double-digit rates,” Simonson said.
There is growth in the broad chemical manufacturing plant category that includes major drug makers who are expanding, as well as natural gas liquefaction trains, he said.
Low layoff rate
Hiring has slowed for construction, but layoffs haven’t increased recently.
Simonson said the trend is due to companies knowing how difficult it is to find skilled workers.
“They’re willing to hold on to workers for quite a while, even when business is slow,” he said. “We saw this in the 2008-2010 period when there was really a drastic slowdown in residential, including multifamily projects that many AGC members work on, but then in private, non-residential, and after 2009 in public construction. And yet, employment didn’t drop nearly at the rate that spending did.”
Interest rate cuts unlikely this year
Simonson, who also serves on the survey committees of the National Association for Business Economics, said the prospects for an interest rate cut had faded, while inflation rates hover above 2%.
“As a result, I think economic growth will continue, but at a sluggish rate with a continued high risk, depending what we see on tariffs and other policy.”
“A rate cut will be beneficial to developer finance categories,” he said. “But it’s really demand that’s going to drive whether banks start lending money and whether developers think that they can make money putting up an apartment building in a market that at the moment is saturated with new projects having come on or with offices still having very high vacancy rates.”
Going forward, Simonson said the likelihood that federal deficits will grow over the coming decade will keep long-term rates high. That’s bad for the 30-year fixed mortgage, as well as for municipal bond issuers, he said.
As for long-term rates, Simonson thinks those will respond to how much appetite “domestic and foreign investors have for this sharply rising federal debt, and that’s the one that worries me.”

Stephanie Ritenbaugh
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