Tariffs prove costly for construction sector, consumers

Construction workers
The construction sector is taking on additional costs due to the current trade war and tariffs placed on project materials. Photo: Department for Business, Innovation and Skills

Trade negotiations between the U.S. and countries including China, Canada and Mexico continue, leaving many sectors, including construction, to absorb the increased costs to associated with buying materials. Many companies who are being forced to take on the additional cost are passing  it on to consumers, while others look at alternative sources from which to obtain steel or aluminum.

Several Washington businesses are reporting that President Trump’s decision to add levies on steel and aluminum imports is harming small businesses and consumers. In March, Seattle-based Steel Fabricating Co. CEO Kevin Duthie told Lens the tariffs would increase material costs and reduce the availability of his company’s products. The fear is that the business could run into material shortages, driving up the price of construction.

Construction companies in Los Angeles have also reported delayed projects, blaming the tariffs in part as the situation has increased production costs. Domestic manufacturers raise their prices as international suppliers do, which inevitably trickles down to hit the various vendors and subcontractors.

On March 8, the United States approved tariffs on steel and aluminum imports at 25 percent and 10 percent, respectively. Over the ensuing few months, the trade war has intensified with China, which decided to add tariffs on wine, pork and steel pipes at the beginning of April and promised to retaliate with “taxation measures of the same scale and the same strength” as the penalties the U.S. places on Chinese goods.

The tit-for-tat has escalated farther, with the Trump Administration announcing it would add new tariffs on $200 billion of Chinese goods after a two-month review process.

A Tax Foundation report estimates that the implementation of tariffs on steel, aluminum and other Chinese products would lower the U.S. GDP and wages by 0.06 percent and result in the loss of just over 45,000 full-time jobs in the long-term.

China isn’t the only country to respond with levies against the U.S., as Canada placed its own retaliatory tariffs on U.S. products, including steel and iron, which face 25 percent levies beginning this month. Mexico has also responded with retaliatory levies on U.S. hot and cold rolled steel, plated steel and tubes.

John Sternlicht, Executive Director of the Economic Development Alliance of Skagit County (EDASC), told Lens that material costs began to rise even before the tariffs’ effective start dates.

“From what I am told, anybody who has a need for those products has experienced price hikes, and that really started just with the rumors of tariffs and retaliations.”

For Skagit County, this meant that its two largest sectors involved in its global domestic product (GDP) – construction and manufacturing — were negatively affected. Those two industries consistently produce the highest wage jobs on average in the county, added Sternlicht.

“It’s a double whammy when you look at the cost of materials and the jobs affected.”

According to ESDAC data, there are 398 construction companies in the county which employ 2,382 people and bring in $5.7 million. For manufacturing, there are 197 businesses that bring in $12.7 billion and employ 4,177 people.

According to the 2018 Skagit Business Guide ESDAC Investor Directory, the three largest manufacturing industries for employment in the county are food manufacturing, machinery manufacturing and wood product manufacturing. Manufacturing as a whole has been slowly recovering since the recession; employment grew 5 percent from 2015 to 2016.

Generally, businesses must look at different avenues and alternative supplies, according to Sternlicht. That isn’t possible for some companies, however.

“It seems logical to me that if the increased costs continue that people will have to scale back in hiring or actual jobs,” but it might be too soon to say, he added.

Seattle-based Walsh Construction Company uses steel in its concrete reinforcement, including ornamental and structural steel. Reid told Lens the pricing for steel has gone up about 10 percent over the last six months.

“We just absorbed the additional cost, which is reflected in our estimates because it hasn’t risen to a level that has caused us to look elsewhere for materials.”

The company primarily specializes in wood frame construction, and Reid added that the lumber costs for the construction sector rose preemptively when talks of tariffs first started, however the price has stabilized since.

“We have been experiencing price pressure for our clients … We’ve been in a real mode of cost escalation for a number of years here…so pain isn’t unexpected, unfortunately.”

 

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