How Tariff Uncertainty Is Impacting the Electrical Industry

“Short-term pain for long-term gain” is the Trump administration’s short answer to critics of its controversial tariff policy; higher tariffs may increase prices now, but they’re an investment in sustainable U.S. economic growth in the future bolstered by increased domestic production.

But as uncertainty about where tariff rates will settle abounds, that calculation is being called into question. Not only might that ultimate pain be harder for the economy to bear now, but the future gains may also not be as certain — or as substantial — as predicted. One of the main worries: Tariffs that raise the costs of production across the economy through higher prices and disrupted supply chains might cripple efforts to build the foundation needed to position the U.S. economy to bear more productive capacity down the road.

That task will depend heavily on the ability of the construction industry to do that building and of the nation’s energy infrastructure to provide the power needed to fuel that growth. And both, it appears, might be in the crosshairs of the consequences of higher tariffs.

Fig. 1. Construction costs for different power capital projects under trade tensions scenario (10% effective rate year-end 2026, China at 34%), and trade war scenario (30% effective tariff rate overall, through 2030). — **Fig. 1.** Construction costs for different power capital projects under trade tensions scenario (10% effective rate year-end 2026, China at 34%), and trade war scenario (30% effective tariff rate overall, through 2030).

In a new study gaming out potential tariff impacts, the power and renewables group at research firm Wood Mackenzie sees the possibility of needed growth and innovation in the nation’s power infrastructure straining under their weight. In the report, “All aboard the tariff coaster: implications for the US power industry,” researchers put the costs for a range of different power sector capital projects rising 6-11% due to higher tariffs, mostly those on China, a key supplier of inputs for those projects (see Fig. 1). But costs for one — utility scale battery storage — which may be critical to the power infrastructure’s ability to meet future energy demand that would accompany economic growth, could increase as much as 50%. For the foreseeable future, the report says, the United States will be reliant on China for the battery cells needed for those utility-scale storage.

“While U.S. battery cell manufacturing capacity is expanding, it is not expanding at a pace nearly fast enough to meet even a small fraction of battery projects in the US,” Chris Seiple, vice chairman, Power and Renewables at Wood Mackenzie, said in a news release. “In 2025 we estimate there is sufficient domestic manufacturing capacity to only meet about 6% of demand and by 2030 domestic manufacturing could potentially meet 40% of demand.”

Solar power generation is another area of concern. Tariffs on Chinese solar panels have been in place, but increases from a new round could further slow deployment in the United States at a critical time. In one of its tariff scenarios, a utility scale solar facility could cost 54% more than a comparable one in Europe and 85% more than one built in China.

In sum, Wood Mackenzie says, the United States power industry — needing to expand and modernize to meet future needs of its operations and the economy — could be hobbled by tariffs.

"Our analysis shows that the current trade policies are creating significant challenges for the US power industry," says Seiple. "While the full impact remains uncertain, it's clear that industry participants need to prepare for increased costs and potential disruptions to their supply chains."

Some of that work to address those issues may already be underway. An April Federal Reserve Bank of Richmond study found 30% of chief financial officers polled in the construction/mining/utilities sector saying they were planning to diversify supply chains due to tariffs. Another 25% said they have found new domestic suppliers, but none said they had found new foreign suppliers. About 18% said tariffs had caused them to move up purchases.

That sector’s actions, the study said, are “consistent with the significant tariff exposure calculated for these industries. This consistency underscores how tariff-related disruptions are prompting tangible strategic adjustments by firms, especially within industries identified as most vulnerable by our average effective tariff rate analysis.”

Fig. 2. The Dodge Construction Network is forecasting future disruptions due to tariff announcements regarding both raw materials and finished products. — **Fig. 2.** The Dodge Construction Network is forecasting future disruptions due to tariff announcements regarding both raw materials and finished products.

In the construction sector specifically, the already tangible effects along with the uncertainty of tariffs may be showing signs of taking a toll. In March, before the extent of the first tariff announcement and subsequent developments were known, Dodge Construction Network was forecasting disruption. An associate forecasting director’s blog post in March on tariffs and construction noted that the tariffs could be more consequential than those in Trump’s first administration, affecting both raw materials and finished products. The possible result: “Greater risk that construction projects in the planning stages could be further delayed or cancelled – as owners and developers grow concerned over uncertain pricing and potential supply chain disruptions” (see Fig. 2).

Looking ahead, the director said, there was a risk that more developers and owners might sit on their hands as the tariff drama unfolded, breeding more uncertainty about what’s ahead for construction.

“As owners and developers weigh policy changes, it’s becoming more likely that they’ll hold off on any project decisions until there’s more clarity around policy decisions,” wrote Sarah Martin. “We continue to believe that the brunt of tariff policy changes will impact the construction industry as we move into late 2025/early 2026. However, the longer tariffs are in place, and the higher they go — the higher the chance that the construction industry is affected more imminently.”