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Builders Weigh in at Tariff Talk

By: Jann Swanson
Posted Wed, Mar 7 2018, 10:40 AM

Opposition to the recently announced tariffs on steel and aluminum imports is beginning to emerge from the construction industry.  President Donald J. Trump announced last week that he would be imposing a 10 percent tariff on aluminum and 25 percent on steel.

The National Association of Home Builders (NAHB) almost immediately issued a statement regarding the announcement. Chairman Randy Noel said, "It is unfortunate that President Trump has decided to impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports. These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders.

"Given that home builders are already grappling with 20 percent tariffs on Canadian softwood lumber and that the price of lumber and other key building materials are near record highs, this announcement by the president could not have come at a worse time.

Trump levied tariffs ranging from 3 to 24 percent on five Canadian lumber companies last April in response to Canada's restrictions on the import of U.S. dairy product. According to Bloomberg, lumber prices have gained 31 percent since then. In fairness, the price increase is rooted in other problems as well. The Wall Street Journal says fires have destroyed some prime forests and a shortage of rail cars and trucks is limiting supplies as well.  In addition, it is probable that the already high demand for lumber has been exacerbated by rebuilding from wildfires in California and hurricanes in the southeast.

"Tariffs hurt consumers and harm housing affordability," Noel said.  "We hope the administration will work quickly to resolve these trade disputes regarding lumber and steel so that businesses and consumers have access to an adequate supply at a fair market price."

Akin Oyedele, writing in Business Insider, said "The US housing industry in in the crosshairs of President Donald J. Trumps planned tariffs on steel and aluminum." As things stand, he said, builders are already unable to meet the demand for housing, especially entry-level units. Even if the tariffs have minimal effect, he said, homebuilders are still facing other barriers such as rising land and labor costs as well as the increased costs of lumber.

The shortage of homes has caused an increasing number of bidding wars, sometimes buyers are bidding on homes sight unseen, and mortgage rates are rising. That's why, Oyedele says, even a small increase in home prices caused by tariffs would not be ideal.

John McManus, publisher of Builder on-line magazine, says American construction firms account for one out of every six dollars spent domestically on steel and aluminum. While that spending is undoubtedly tilted toward commercial building, it will raise residential costs as well, including the prices of appliances, and construction equipment.

McManus says that, aside from the possibility of rising costs, builders have pushed collective investment into increasing their capacity and in trying to provide lower cost bands for buyers. They need "all the help they can get from continued job formations, higher wages, and healthier consumer confidence."

Various countries that will be affected by the tariffs have already threatened retaliation, so far just tailoring their responses politically.  Targets include Harley Davidson motorcycles, manufactured in Speaker of the House Paul Ryan's home district and blue jeans, from House Majority Leader Nancy Pelosi's turf.  They also hit at Majority Leader Mitch McConnell with a threated tax on Kentucky bourbon.  Moody Analytics economist Mark Zandi says if that's the worst it gets, the American economy would lose 0.1 percent of its output this year and 190,000 jobs.  A full-out trade war could plunge the country into recession.

McManus says, "[The tariff's] collateral and perhaps unintended consequences, however, are numerous and profound, and hit very close to home for home builders trying to capture momentum for a housing recovery that, to date, promises at least one major thrust upward and forward. Not only that, the initiatives could devolve into a domino-effect of global reactions and retaliations that could halt recovery in its tracks."

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