Blog
June 2018

We’re seeing huge uncertainty in the construction industry as the Trump administration announced steep tariffs on imported steel and aluminum and is escalating concerns of an upcoming trade war with U.S. allies. The European Union, Canada, Japan, Mexico, China, and India are retaliating with their own higher tariffs on U.S. imports. Last week, Donald Trump left the G7 summit suggesting that the United States might end all trade with our closest allies if they don’t submit to his demands over reduced trade barriers. Around the same time, China announced tariffs on $50 billion worth of American beef, poultry, tobacco, cars, and other products.

The metal tariffs came about in response to the U.S. Department of Commerce’s finding that U.S. steel imports, which were nearly four times our exports, threatened to impair national security. The administration hoped to boost domestic steel production and lower imports, leveling the playing field for the steel industry. It didn’t seem to take into account the rising costs of construction.

So what does this mean for the industry?

Many construction firms and industry experts predict the steel tariffs could hit the industry hard. Prices for construction materials have already risen rapidly. (According to the Associated General Contractors of America, steel mill product costs rose 5 percent between February 2017 and early 2018.)

“We are experiencing unprecedented market conditions. Construction demand is outpacing the market’s ability to provide labor and materials, and when they are available, they are at a premium,” said Terry Shanley, director of operations and business development for DAY CPM, a division of Otak. “At this point, we are unsure of what to expect in the near future. We know the prices will continue to rise as demand continues, which unlike the previous boom, appears to be fueled by demand, not something artificial.”

Higher costs, along with the ongoing labor shortage, will drive prices higher and might prompt some developers to halt some of their projects.

What should we expect?

We could see a rise in steel prices of 25 to 28 percent because of the tariffs through 2022. An even bigger concern is that the tariffs and apparent trade war could undermine economies here and around the world from the rollback of free trade practices, according to Tim Duy, economist at the University of Oregon. A trade war could threaten many of Oregon’s biggest industries.

U.S. steel prices are rising already. “Some can be attributed to uncertainty of impending tariffs, but most are a result of demand as is the case with other commodities such as drywall and lumber,” Terry Shanley said. “We expect prices to increase, across the board, as much as 12 percent over the next year.”

“These new tariffs will cause significant harm to the nation's construction industry, put tens of thousands of high-paying construction jobs at risk, undermine the President's proposed infrastructure initiative, and potentially dampen demand for new construction projects for years to come,” said Stephen E. Sandherr, CEO of Associated General Contractors of America. “That is because the newly imposed tariffs will lead to increases in what construction firms are forced to pay for the many steel and aluminum products that go into a typical construction project.”

In combination with skilled labor shortages, the increased steel prices could slow down development, depending on product type and location. The price increases could affect the budget for a steel-framed, high-rise office more than a wood-framed apartment complex.

How can clients prepare for the increased prices?

Along with the tariffs on imported steel, the uncertainty in the market means that you should build your budgets with additional contingency reserves to anticipate increased costs resulting from the current economic climate and market volatility. Cost estimating and managing scopes of work become more important than ever.

If you’d like to discuss how the steel tariffs will affect your specific projects, contact your Otak or DAY CPM project manager or owner’s representative. Partnering closely on cost estimating and project management, we can prevent surprises and mitigate the impact of the rising prices.

Sources:

https://www.oregonlive.com/business/index.ssf/2018/03/trumps_tariffs_could_have_mute.html 

http://www.concreteconstruction.net/business/management/the-cost-of-steel_o 

http://www.builderonline.com/money/prices/agc-of-america-tariffs-and-other-trade-measures-are-raising-construction-costs_o 

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