Newly enacted tariffs on Chinese goods are already increasing the cost of construction materials, according to news reports.
Chinese materials account for about 25% of the $15 million in materials required to build a 19-story building of condominiums, according to one New York City developer featured in The New York Times. He estimates the current tariffs will increase the cost of the materials for the project he’s building by $375,000. A manageable increase for a large project, but it can be much more difficult for the construction of a smaller development or even a single home. However, these increases are only the beginning.
Last week, President Donald Trump announced his plan to enact reciprocal tariffs, which are new tariffs for each country that charges a tariff on U.S. goods. But this round of tariffs will also take into consideration the taxes charged U.S. goods in foreign countries and the subsidies that home countries provide to their industries.
The exact size of these new tariffs is still being worked out, and as with tariffs on Canada and Mexico goods, some may be negotiating tactics. But The New York Times reports that builders and developers are already seeing escalation clauses to account for increased costs and dealing with suppliers delaying price sheets for imported goods. They are also receiving bids for materials that are only good for two weeks, as opposed to the usual two to three months.
The Trump administration’s announcement of 25% tariffs on steel and aluminum imports is also expected to increase the cost of constructing buildings and homes. Major home appliances, such as refrigerators and washing machines, are expected to be going up in price.
During Trump’s first term, steel and aluminum tariffs led to price increases of 5% to 10% for many major appliances, between June 2018 and April 2019, according to a report from the Bureau of Labor Statistics. Those price hikes were much higher than the overall inflation rate at the time of about 2%. While appliances did fall soon after that jump in costs, the same type of increase in appliance costs is expected this year.
The National Association of Home Builders (NAHB) estimates that as of Feb. 7, year-over-year prices for framing lumber were up 13.2%, and overall lumber was up 7.1% from a year ago. Part of these increases was the result of the 14.5% of tariffs currently on Canadian softwood lumber.
It is estimated that Canada producers make up about 30% of softwood lumber consumed in the U.S. each year. The NAHB expects that if the Trump administration goes forward with its plans, the tariffs on softwood lumber could double to about 29%.
NAHB Chairman Carl Harris recently said in a statement that Trump has spoken of working to lower housing prices, but these tariffs on imported products, including steel and aluminum, do the opposite. “The administration’s move to impose 25% tariffs on all steel and aluminum products imports into the U.S. runs totally counter to this goal by raising home building costs, deterring new development and frustrating efforts to rebuild in the wake of natural disasters. Ultimately, consumers will pay for these tariffs in the form of higher home prices.”
