Trump’s tariffs: How will US construction fare? | Global Trade Magazine
  October 4th, 2018 | Written by

Trump’s tariffs: How will US construction fare?

The sector is paying a clear short-term cost for hoped-for long-term gains

Sharelines

  • The US construction industry is being negatively impacted by Trump's protectionist trade policies.
  • Tariffs on Canadian lumber are having a greater impact on US construction than the steel and aluminum tariffs.
  • Anything that raises building costs adversely affects the US construction industry.
  • Trump’s tariffs could eventually affect housing affordability in the US.

President Donald Trump’s protectionist trade policies were initially intended to help the United States, and there are arguments that certain industries will benefit. Yet there are some sectors that report that they’d be hurt by his protectionist policies. The truth lies somewhere down the middle according to certain analysts.

Let’s take a closer look at the issue in greater detail and see whether the US construction industry stands to benefit from the Trump administration’s protectionist strategy.

The lumber industry

President Trump applied hefty tariffs on Canadian lumber. Prices rose 25 percent year over year, and lumber now costs 60 percent more than it did two years ago. This has raised the ire of the National Association of Homebuilders among others. While the intent was to spur greater reliance on US timber, some businesses were forced to import lumber from Russia to meet price and schedule commitments.

The construction industry

The steel and aluminum tariffs are going to raise the cost of these key building materials. For example, construction accounted for more than two-fifths of US steel shipments. Those higher costs could cause construction to slow down and impact infrastructure spending. The Trade Partnership, an economic consulting group, projects that around 30,000 jobs would be lost in the construction industry as a direct result of these tariffs.

Another issue introduced by the tariffs is price volatility. You can’t be sure what you’re going to pay for materials if you use existing suppliers. A potential problem for builders would be greater control over imports. If you can’t import what you expected from an existing supplier, you’ll be forced to find a new, American supplier and pay a higher price for materials. Contractors and subcontractors have to factor prices and price risk into their bids. This could cause a spike in price bids, potentially causing firms to lose out on work or end up working for less than their material and labor costs. Over time, as an exact tariff is established and manufacturers lock in prices, the uncertainty will decrease. However, it is certain that prices for infrastructure projects like roads and bridges will end up costing more to build.

The tariffs on Canadian lumber are having a far greater impact on the broader construction industry than the steel and aluminum tariffs. NAHB head Jerry Howard said that the construction industry was still in recovery mode from the Great Recession that really only ended once Obama was out of office. However, the industry is only at 66 percent capacity, so it has a long way to go.

The potential impact on consumers

The American Institute of Architects said that anything that raises building costs adversely affects the construction industry, and they’re not alone. The National Association of Home Builders brought up concerns that the higher material costs would eventually translate into higher new building costs. This could affect housing affordability. It could also slow down the construction of new buildings due to their higher cost.

In the case of new homes, steel and aluminum are about half a percent to one percent of the final price. It is the construction of multi-story and multi-family housing where the tariff has its greatest impact. Even multi-story buildings that are mostly made from concrete need steel supports, steel rebar, and aluminum window cladding.

Consumers will be indirectly hurt by the shift to domestic suppliers on such short notice. Domestic steel production cannot meet the demand that is currently being met by foreign suppliers. Businesses will likely experience delays as they wait for domestically produced steel. That increases construction timelines for infrastructure projects like roads, bridges, and tall buildings. This will impact the construction timelines for buildings in the surrounding area.

Trump’s policy of removing burdensome regulations and thus speeding up the construction process will not entirely offset the delays introduced by shortages of critical building materials. Reducing regulatory costs will reduce construction costs long-term but not fast enough to offset higher costs for lumber and metal. You’ll likely end up paying less for roofing liability insurance but not the supporting structure for the roof itself. Ironically, his upgrades in infrastructure spending only lead to increased competition for limited American materials. Repeal of bureaucratic regulations for the banking industry may lead to more mortgage lending. That will eventually fuel more residential construction.

The lumber tariffs are creating availability issues cause delays in projects. These delays add to the cost of projects while delaying the start of new ones. If a contractor can’t finish on schedule, then everything from new roads to new apartment buildings has to wait. Conversely, the expected positive economic growth from other Trump policies is expected to somewhat contribute to a boost in non-building construction.

Conclusion

President Trump’s policies are set to have a profound effect on the American economy. But in the short-term, his tariffs are expected to affect the supply of building materials and raise material costs while the construction industry is still trying to recover. We’re paying a clear short-term cost for hoped-for long-term gains.


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