Tariff implications for the construction industry
|Summary
How will new tariffs impact construction?
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Trade policy is currently in flux. The Trump administration has announced sweeping new tariffs on many U.S. trading partners. A flat 10% import duty was applied to all countries, while a long list of trading partners were targeted for reciprocal tariffs ranging from 11%-50%. Though the reciprocal tariffs now appear to be suspended, China is still subject to levies of over 100%.
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Steel, aluminum, lumber, copper and other key building materials were not included in the reciprocal tariff announcement. However, many of these goods were either already subject to product-specific tariffs earlier or are currently undergoing investigations, which could lead to higher tariffs in the future.
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Trade policy changes seem likely to exert upward pressure on construction costs though higher material prices. Although the construction industry does not have outsized exposure to international trade, increased levies on foreign producers will likely reduce international competition, increase domestic demand and ultimately push up domestic material prices.
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The knock-on effects of tariffs on economic growth, interest rates and construction demand are highly uncertain, though risks are skewed to the downside. Weaker economic growth could drag down some commodity prices, a trend which appears underway for oil and lumber.
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Roughly 10% of construction materials are imported, not far above the all-industry average. Select inputs are imported in relatively higher shares, including major household appliances, lighting, HVAC and plumbing.
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The shift in trade policy arrives as construction cost inflation has normalized. Prices for many materials and components, however, are still significantly above their pre-COVID norms.
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Higher material prices, if not fully absorbed by producers, could constrain residential construction and further erode housing affordability. Increased construction costs could also be a limitation for commercial real estate development, which has downshifted markedly alongside higher interest rates.
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