Tariffs have yet to have a signficant impact on highway construction costs in Arkansas, although that could change, a state Department of Transportation official told the Arkansas Highway Commission last week.
“There are three areas where we evaluated the effect of tariffs, these include direct impacts, indirect impacts and on the availability of materials,” Kevin Thornton, chief of administration for the department, told commissioners at Wednesday’s meeting.
“Direct impacts would be tariffs on items such as steel that we use in our construction projects or on vehicles that we purchase and use on a daily basis. Indirect impacts would be on items that we or our consultants and suppliers use that would increase their overall operational costs, which would lead to increased costs for our daily activities,” he continued.
He said the department hasn’t seen major price increases tied to tariffs, although prices have risen for some items, such as traffic cones, pavement marking materials and aluminum signs.
The federal Build America Buy America Act is one reason costs haven’t increased, Thornton said. The law, part of the 2021 bipartisan infrastructure law, requires products that are permanently incorporated into projects that recieve federal aid to be made in the U.S., although the raw materials can come from other countries.
Thornton also credited the way the department conducts bid letting, awards contracts and works with contractors. Contractors can invoice the department for materials early on in the construction process, ensuring they are able to purchase, stockpile and recieve payment for things like steel beams as soon as possible. That helps insulate the department from cost increases, Thornton said.
“Looking ahead there is still uncertainty with respect to tariffs and the future. However, for now, the overall impact of tariffs is limited. And because of this we see no need for immediate policy changes here at ARDOT. Feedback from national industry groups and other state DOTs agree with this position,” Thornton said.
“While tariffs may result in price volatility and longer delivery times for some materials, our procurement processes and supplier relationships are expected to buffer most of those impacts,” he continued.
Jessie Jones, the department’s chief engineer of preconstruction, said in an email after the meeting that more contractors have been bidding on department projects, which has also helped.
“Over the years, we have seen that a greater number of bidders on a project tends to produce lower construction costs,” Jones said. “Since the beginning of this year, on average, there have been more than three bidders per project. This is resulting in better prices for our projects.”
Still, Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas, Fayetteville’s Sam M. Walton College of Business, said the U.S. hasn’t yet felt the worst effects of the Trump administration’s trade war.
“Businesses are sitting on larger inventories than they traditionally would have been, because they brought in items before they were tariffed,” Jebaraj said in a phone interview. “So we haven’t seen the full brunt of the tariff costs yet because businesses are working through the inventories of pre-tariffed goods.”
Jebaraj said companies have been strategic about when they import goods and from which countries they buy. In April, when tariffs where at their highest point, many firms didn’t purchase foreign goods at all, relying mainly on stockpiled inventory.
As the baseline tariff for most countries went back down to 10% and China and the United States negotiated tariffs down to 30%, importers began buying again. Even those lower tariffs, however, could lead to increased prices, Jebaraj said.
“In April, at the height of all of these things, when you had multiple tariffs on different countries and there was a 145% tariff on China, the effective tariff rate across the board for all things coming into the U.S. that consumers end up purchasing would have been about 28%,” he said. “Today, that has dropped to around 15%. That is still significantly higher than the 2.5%, which is where it was at the beginning of this year.”
In an email, Thornton acknowledged that tariffs could affect the cost of construction at some point.
“It is difficult to state how tariffs will impact future costs, since there are many factors that can and do affect construction cost. Tariffs are certainly one of those factors. We will have to wait and see how the uncertainty created by the tariffs combine with various other factors to impact future construction costs,” Thornton said.