How Tariffs Are Changing the Math of Data Centre Construction—and How Canada is Maintaining a Competitive Edge

Written By Natalia Iamundo and Michelle Yung

Tariffs have created new challenges for data centre construction through increased costs on a range of imported materials and components—and even small increases in prices or supply chain disruptions can have major implications. Below, we explore the top five ways tariffs are impacting data centre construction and highlight how, despite these impacts, Canada remains a prime location for data centre development.

Rising Construction Costs

New tariffs on essential materials like steel, aluminum and copper threaten to significantly drive up costs for building data centres. These materials are critical to the facilities' physical frameworks and electrical systems, which include cooling environments for high-density servers. Some analysts estimate that construction costs could rise by as much as 5 percent due to tariffs on raw materials.¹

Supply Chain Disruptions

Tariffs have amplified existing supply chain bottlenecks and created new ones, particularly for electrical components such as transformers and power infrastructure. Wood Mackenzie, a leading market intelligence firm, states that the US imports over 80 percent of its large power transformers. Canada, Mexico, China and the EU supply various types of electrical equipment to the US. In 2024, Canada accounted for 20 percent of US imports of high-voltage switchgear, and 100 percent of its imported utility poles, in all. representing approximately 15 percent of the US market.

Consequently, higher tariffs will not only extend lead times for component parts already in high demand and limited supply, but will also cause further delays in the completion and operation readiness of new data centres.

Uncertainty in Market Planning

The current volatility in trade policies introduces an unwelcome layer of complexity to an asset class that requires long-term planning and significant investment. It becomes increasingly difficult to budget for projects when tariffs are subject to sudden fluctuations. While we saw in the spring that certain hyperscalers were slowing or pausing data centre commitments, the tide seems to be shifting, with Amazon recently announcing its plans to invest US$20 billion in Pennsylvania and AU$20 billion in Australia to expand data centre infrastructure, US$10 billion in North Carolina for new cloud infrastructure, and US$5 billion in a cluster of data centres in Taiwan.

Impact on AI and Advanced Applications

Perhaps the most significant consequence is how tariffs impede the infrastructure required for AI development. High-performance computing systems and AI workloads rely heavily on advanced hardware like GPUs, specialized accelerators and liquid cooling systems, which are often imported from tariffed countries. The rise in costs for these products could slow down innovation and the rollout of next-generation AI solutions.

Strain on Energy Access

Energy infrastructure provides the lifeblood of data centres, and tariffs added to the challenges of grid congestion and resource allocation. Rising costs for transformers and other power hardware may make it harder to secure reliable and affordable energy. This is particularly problematic in high-demand regions where grid capacity is already stretched thin.

The Canadian Landscape

Despite these factors, Canada benefits from a multitude of strategic advantages for data centre development:

• proximity to major markets—acting as a key connectivity node;²
• lower energy costs, especially in Quebec and BC;
• considerable power infrastructure including renewable energy (critical for major tech firms with sustainability targets);
• favourable climate which reduces the need for artificial cooling and mitigates the risk of extreme weather events;
• robust privacy and data protection laws; and
• skilled workforce—data centres require specialized labour at different stages.

Canada is in the midst of several major investments in digital infrastructure. In December 2024, the federal government unveiled its AI Sovereign Compute Strategy, a C$2 billion plan the objectives of which are: (i) to grow Canadian AI champions by investing in new or expanded data centres (through the AI Compute Challenge); (ii) to build public computing infrastructure; and (iii) to provide affordable access to compute power for small and medium sized enterprises (through the AI Compute Fund)³ to increase domestic compute capacity.

AI featured prominently in Prime Minister Mark Carney's campaign platform, and Canada now has its first minister of artificial intelligence—a clear signal that Canada's economic sovereignty is intertwined with its strategy to lead in digital innovation. At the provincial level, and as Bennett Jones covered extensively here, the Alberta government has launched an AI Data Centre Strategy, which demonstrates the many ways the province is well positioned for data centre development.

Within private industry, there has been a recent shift to Canadian-based infrastructure, in part to mitigate cross-border data and tariff risks. In May 2025, TELUS announced a C$70 billion investment over five years to expand and enhance its network infrastructure and operations across Canada, in part to "fuel homegrown innovation and support the prosperity of urban and rural communities". Notable is the launch of two sovereign AI factories in Kamloops, British Columbia and Rimouski, Québec. In a similar vein, Bell Canada announced Bell AI Fabric, the creation of a national network starting with a data centre supercluster in British Columbia to provide upwards of 500 MW of hydro-electric powered AI compute capacity across six facilities.

Navigating the New Landscape

Tariffs are challenging companies involved in data centre development to rethink their strategies. Many are looking to diversify supply chains, source components domestically, or invest in new energy solutions to mitigate the impact. While these adaptations take time, and the road ahead remains uncertain, Canada is poised to become a global data centre powerhouse².

Bennett Jones has written on the widespread effects of tariffs on construction costs in our previous blog, Navigating US-Canada Tariff Tensions: Managing Risk in Construction Contracts; and on the ways that private equity is investing in the digital infrastructure necessary to data centre development, in our previous blog, Private Equity Investment in the Picks-and-Shovels of the AI Infrastructure Boom.

Bennett Jones provides comprehensive legal solutions tailored to the specific needs of data centre project development. We have a deep team with the multidisciplinary areas of expertise necessary to support these projects. Explore our Energy, Infrastructure, Construction, Commercial Real Estate, Energy Regulatory, Tax and Intellectual Property practices for more information on the qualifications and experience of our various teams.

To discuss how tariffs are affecting data centre project development and how your organization can adjust and adapt, please contact one of the authors.

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