With Donald Trump’s pending inauguration as the 47th President, he has made tariffs the centerpiece of his trade policy, a way to force compliance on priorities and a partial solution to tax revenue shortages.
The Biden administration continued the tariffs on Canadian Softwood lumber, some of which have doubled over the last four years. This has been a factor in keeping new construction prices high. Now, the new administration is pushing for an additional 10-25% to even trade imbalances, foster domestic manufacturing, and force changes in helping enforce US immigration laws. Since home building has traditionally been a major driver of US expansions, tax policies that work against home building seem to be the wrong move. Lumber is a key indicator to watch, as Donald Trump’s first-term lumber tariffs did add to the cost of building a home. In 2018, the National Association of Homebuilders estimated that the first-term Canadian lumber tariffs added nearly $9000 to the home’s cost. However, USA manufacturers have expanded their production of framing lumber, particularly in the South, and the tariffs may simply move previously Canadian-sourced items to those items that are manufactured domestically. There will likely be increases in USA-made lumber and panel prices, but demand will be driven as the homebuilding market recovers.
While much of the lumber, plywood, shingles, and other primary components in home building are made in the USA, steel is a major part of homes in the form of beams and posts and in further manufactured goods like garage doors and openers, window parts, pipe, and nails, for which options in the supply chain beyond being Chinese-sourced are limited in the short term.
Our guess is that President-elect Trump will follow through on some part of the threatened Chinese tariffs, although they may become more targeted to foster growth in the economy. The focus seems to be squarely on stopping Chinese EV imports and stopping the flow of the ingredients in Fentanyl now being shipped into Mexico. There will probably be some phased-in lower tariffs on China that do affect homebuilding supplies. Still, manufacturers will shift parts sourcing other markets, including making some in the USA and using other manufacturing markets like Vietnam, Cambodia, and other emerging manufacturing markets.
The bigger impact will be how much inflation the tariff scheme adds to the economy. If inflationary, as predicted, it will slow the Fed’s reduction in interest rates. High interest rates are keeping people in rentals and keeping people from moving. Once rates drop below 6% into what has historically been a range where consumers will opt to buy or move up, it will have the largest impact on home building. So, while there may be some direct impact, what bears watching continues to be mortgage rates, personal income, and debt, three key indicators that need to move in the right direction to push homebuilding and remodeling to the higher levels we all want to see.
