05/20/2019 | BY JUSTIN FEIT, JANELLE PENNY
President Trump lifted tariffs on steel and aluminum imports from Canada and Mexico on May 17, 2019, clearing the way for the three countries to sign the US-Mexico-Canada agreement, a replacement for the North American Free Trade Agreement (NAFTA).
The move happened just a few days after the president moved to escalate a trade war against China by signing an executive order that lays the groundwork for banning Chinese tech giants like Huawei from selling products in the United States.
The steel and aluminum tariffs against Canada and Mexico amounted to a 25% tariff on steel and 10% on aluminum. Canadian and Mexican officials were clear that they would not ratify the new US-Mexico-Canada Agreement until the tariffs were lifted. However, the new trade deal still needs support from House Democrats, who are questioning whether the deal provides adequate labor and environmental protections, according to CNN.
In addition to paving the way for the new trade agreement, supporters also hope the move will put a stop to retaliatory tariffs from both Canada and Mexico. Canada instated levies against U.S. pork and dairy products as a response to the metal tariffs, making it difficult for American farmers to sell to the Canadian market.
Other allies impacted by the tariff pledge responded similarly; in the wake of the initial tariff announcement last year, the European Union released an eight-page list of U.S. goods now subject to tariffs that included everything from canoes to “manicure or pedicure preparations.”
Chinese goods, meanwhile, are now subject to a 25% tariff as of Jan. 1, an increase from the previous 10%. The tariff may also soon cover more goods than before, according to CNN. Popular products like consumer electronics, toys and shoes will now be subject to the 25% tariff, which could soon apply to another $325 billion in goods—more than double the $200 billion of productspreviously subject to the tariff.
How will the changing tariff landscape impact the buildings industry? The answer, as always, is uncertain.
Some U.S. steel and aluminum producers are saying they benefited from the tariffs on Canada and Mexico. Several American steel mills, including a US Steel plant in Fairfield, Alabama, have announced plans to reopen. But critics point out that the job gains in these plants aren’t nearly enough to make up for what the industry has lost over the years.
In the US Steel example, the expansion will add roughly 150 jobs, but the company eliminated nearly 1,000 jobs when it closed other Fairfield-area operations in 2015.
Critics have also pointed out that the gains for the steel industry are likely to have knock-on effects for companies that buy steel and aluminum. With many building systems reliant on these materials (roofing, HVAC equipment, vertical transportation, etc.), facilities managers have faced challenges.
Manufacturers have worked to either lessen the impact of the tariffs on their customers or pass on the extra cost, resulting in lower profits or higher prices, respectively.
The impact of the higher tariffs on China and expanded list of subject goods remains to be seen, but it’s likely that the action will have a similar result. A study by the Peterson Institute of International Economics suggests that facilities managers are likely to be hit by the Chinese tariffs in several purchasing areas.
About 91% of textiles and clothing imported from China will now be subject to the tariffs; this could impact future plans for interior renovations that include upholstered furnishings.
The Peterson study also suggests that about 67% of the electronics and electrical equipment coming from China will incur the tariff, which could cause issues in high-performance buildings that increasingly rely on sophisticated technologies to monitor building health.
The tariffs are also likely to impact about half of stone and glass imports, 49% of machinery imports and 45% of plastics and rubber imports, all of which may significantly affect the final costs of building equipment and supplies.
Broader Economic Implications
The long-term impacts of the tariffs have yet to be seen, but CNBC cites Treasury Department data that shows the income from the tariffs. The United States earned about $41 billion from customs duties in the last fiscal year, representing about 1% of the revenue that the federal government raised during that time period.
The tariffs on China took hold in July 2018, increasing revenues by about $2.2 billion per month compared to the previous year.
The original steel and aluminum tariffs were touted as a national security measure, but President Trump suggested recently that the tariff income could be used to reduce the federal deficit, which totaled $77 billion in July 2018 compared to $43 billion a year ago, or to pay down the national debt, which sits at over $21 trillion.
Critics of the tariffs have painted a bleak portrait for the U.S. economy from the beginning, forecasting increasing volatility in global trade and slowed growth in job creation. The Trade Partnership, a consulting firm focused on issues of trade policy and international markets, released a report (PDF) after the original round of tariffs took effect suggesting that the wide-reaching implications of these tariffs would cause more harm than good to the overall economic health of the U.S.
More than five jobs could be lost overall for every one gained, notes the report. In addition, more than 36,000 job losses are expected in other manufacturing sectors and would cancel out the job gains in the aluminum and steel producing sectors.
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Furthermore, it is not yet clear whether the U.S. will be able to ramp up steel and aluminum quickly enough to keep prices down, which will hurt consumers, especially those working on construction projects. The expected overall economic ramifications, increases in steel and aluminum prices, and a smaller workforce in manufacturing could make retrofit projects for facilities managers much more difficult to budget.
Illinois rebar manufacturer Metal Partners International ate more than $3 million of steel price increases between May and August 2018 in an attempt to keep the cost of production down while it waited for the Department of Commerce to grant it an exclusion to the tariffs, the company’s owner told CNBC.
Industry Opposition to the Tariffs
With these expected outcomes, the buildings industry is on shakier ground. Industry experts have voiced their opposition to the tariffs since day one, citing increased costs for vital components to building systems. “These metal products are some of the largest material inputs in the construction of buildings. Structural metal beams, window frames, mechanical systems and exterior cladding are largely derived from these important metals,” stated American Institute of Architects (AIA) president Carl Elefante, FAIA, and executive vice president/chief executive officer Robert Ivy, FAIA, when the steel and aluminum tariffs were first announced. “As creative problem solvers, architects rely on a variety of these materials to achieve functional and performance goals for their clients. Inflating the cost of materials will limit the range of options they can use while adhering to budgetary constraints for a building.”
Because of the importance of steel and aluminum to contemporary buildings, finding cost-effective solutions that have the same structural integrity can be difficult. Moreover, the design challenges directly affect contracting work for construction projects, contractors warned at the outset.
“Firms that are already engaged in fixed-price contracts may be forced to absorb these costs, forcing them to cut back on new investments in equipment and personnel,” says Stephen E. Sandherr, CEO of the Associated General Contractors of America.
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“Higher steel and aluminum prices will make the kind of infrastructure work President Trump supports more expensive, forcing federal, state and local officials to cut back on projects they can fund. And the likely trade war these new tariffs prompt will diminish demand for private investment in infrastructure as well as construction demand for manufacturing, shipping and distribution facilities.”
Renegotiating NAFTA may exert some downward pressure on prices, but with increased pressure on China and no relief in sight for the EU, it’s clear that President Trump is taking a harder line there. Nevertheless, the exact impacts of these tariffs will be felt over time for facilities managers, but it’s hard to know exactly what to expect.