Risk and Resilience of a Circular Economy in the Construction Industry Amid Political and Trade Uncertainty
By James Morton
The construction industry is increasingly embracing circular economy principles to enhance sustainability by promoting resource efficiency, waste reduction, and material reuse. However, geopolitical tensions, trade policies such as U.S. tariffs on steel and aluminum, and global conflicts pose significant challenges to this transition. These external factors create uncertainty in supply chains, disrupt material flows, and force industry stakeholders to rethink procurement strategies. This article explores the implications of these factors on the circular economy within the construction sector, providing detailed insights and supporting sources.
The Impact of U.S. Tariffs on Steel and Aluminum
In March 2025, the U.S. government expanded tariffs to include a broader range of steel and aluminum products, affecting key trading partners such as the European Union and Canada. These tariffs imposed a 25% duty on steel imports and a 10% duty on aluminum imports, significantly impacting the construction industry, which relies heavily on these materials. The Boston Consulting Group estimated that these tariffs would add approximately $22.4 billion to the cost of steel and aluminum products imported into the U.S. (BCG).
The immediate consequence was a surge in domestic steel prices, which increased by 14% following the tariff implementation. This price hike will lead to increased construction costs, causing some contractors to delay projects due to budget constraints (Construction Dive). Moreover, the tariffs disrupted supply chains, as manufacturers struggled to find domestic alternatives for essential components like screws, nails, and bolts. The Wall Street Journal reported that the cost of certain screws rose from 10 cents to 17 cents apiece, highlighting the financial strain on construction projects (WSJ).
Geopolitical Conflicts and Supply Chain Disruptions
Geopolitical conflicts exacerbate supply chain vulnerabilities, leading to material shortages and price volatility. The ongoing conflict in Ukraine has disrupted the availability of critical construction materials, particularly steel and aluminum, forcing companies to explore alternative sourcing strategies. Sanctions and trade restrictions have limited access to Russian steel, which was previously a major supplier to European markets. This situation has further emphasised the need for resilient supply chain strategies and has made it more challenging for companies to implement circular economy initiatives that depend on stable material flows.
In response, some regions have adopted deconstruction over demolition, salvaging materials from damaged structures for reuse in rebuilding efforts. This approach not only addresses immediate material shortages but also aligns with circular economy principles by reducing waste and promoting resource efficiency. Europe’s future metals strategy has been hindered by the ongoing crisis, complicating the availability of key construction materials (Reuters). In Canada, steel and aluminum plants have already begun laying off workers due to the impact of U.S. tariffs, reflecting the broader economic consequences (Reuters).
Circular Economy as a Strategy for Resilience
Adopting circular economy practices can mitigate the risks associated with geopolitical tensions and trade policies. By focusing on material recovery, adaptive reuse, and local supply chains, construction firms can reduce dependency on imported materials and buffer themselves against price fluctuations. The World Economic Forum emphasises that integrating circular economy principles enhances supply chain resilience, enabling operations to continue amidst unforeseen disruptions (WEF).
Furthermore, the circular economy reduces reliance on finite resources, thereby decreasing exposure to geopolitical risks associated with resource scarcity. By keeping valuable materials in a closed loop, companies can better manage resource use and lessen dependence on single-source supply chains (Zuehlke).
Investing in modular construction, prefabrication, and recycled materials can provide firms with greater flexibility during times of crisis. However, barriers such as high initial costs, lack of standardised regulations, and resistance to change remain significant hurdles. Governments and industry leaders must incentivise circular economy adoption through tax benefits, grants, and updated building codes to facilitate a smoother transition.
Who is Affected the Most?
Developers and contractors face increased costs due to rising material prices and supply chain disruptions, which impact project timelines and profitability. Small and medium-sized enterprises (SMEs) are particularly vulnerable as they often lack the financial buffer to absorb sudden cost increases. Designers and architects must rethink material selection, integrating more reusable and locally sourced materials to future-proof projects against geopolitical instability. Clients, including real estate investors and public infrastructure planners, are now prioritising sustainability in response to increasing regulatory pressures and ESG commitments.
Investment funds and financial institutions are also affected, as traditional valuation models for real estate and infrastructure projects must now account for circular economy risks and opportunities. Investors who adopt circular economy principles early may benefit from more resilient assets, while laggards risk exposure to stranded assets that fail to meet evolving regulatory and market demands.
Conclusion
While U.S. tariffs on steel and aluminum, along with geopolitical conflicts, present significant challenges to the construction industry's adoption of circular economy principles, these same challenges underscore the importance of transitioning to more sustainable and resilient practices. By embracing circular construction strategies, firms can mitigate risks associated with material shortages and price volatility, ultimately contributing to a more sustainable and adaptable built environment. Industry stakeholders must collaborate to develop policies, incentives, and regulations that encourage widespread adoption of circular economy principles, ensuring that the sector remains resilient amid political and trade uncertainty.