President Donald Trump’s latest round of steel and aluminum tariffs took effect Wednesday, doubling the tax on imported metals from 25% to 50% and throwing a fresh dose of uncertainty into investment decisions as well as already teetering construction projects.
Trump announced the latest move Friday while visiting a U.S. Steel plant outside Pittsburgh, giving the property industry little time to prepare. The new levy is the latest in a saga of here-today-gone-tomorrow trade policy that has shaken up investor confidence and slowed the flow of money into U.S. commercial real estate.
“Uncertainty is a corrosive on growth, and there’s no other GDP component that suffers more under uncertainty than private nonresidential construction,” Bernard Yaros, lead U.S. economist at Oxford Economics, told Bisnow in a statement.
Metals pricing has been on the upswing all year for nonresidential construction. Steel mill products were up 5.9% in April, according to the most recently available data from the Associated Builders and Contractors. Costs have risen 2.4% year-over-year.
Nonresidential construction spending dipped 0.1% in April, according to ABC’s analysis of Census Bureau data released this week. Nearly 22% of contractors reported tariff-related project delays or cancellations in April, ABC Chief Economist Anirban Basu said in the release.
The downstream effect is hitting all asset classes.
“Investors are pulling back from industrial construction as it is extremely difficult to anticipate pricing for materials and the cost of a project in the current environment,” said David Greek, managing partner at Greek Real Estate Partners. “The investors that are active are seeking to buy existing facilities selling below the value of replacement cost.”
About a quarter of all steel used in the U.S. is imported, most of it from Mexico and Canada or allies in Asia and Europe, including Japan, South Korea and Germany. Half of all of America’s aluminum is imported, largely from Canada.
The construction industry uses more steel than any other industry, about a third of all U.S. steel shipments, according to the Council on Foreign Relations.
“How is it that you’re supposed to buy the most expensive steel in the world in the United States, and compete with global competitors who have access to world market pricing,” Insteel Industries Inc. CEO H.O. Woltz asked in an NPR interview. The company makes steel wire cables used to reinforce concrete.
A simulation of the additional 25% tariffs on steel and aluminum through Oxford Economic’s structural model of the U.S. economy found most of the impact will be felt in areas like business investment in development, Yaros said.
But the incremental hit to the economy and the CRE market may not be as large as the industry fears. What will weigh most on construction activity in the second quarter and onward is the sheer amount of policy uncertainty, Yaros said.
With or without the 50% steel and aluminum tariffs, that uncertainty will stay high, he said.
“Compared to other types of business investments, structures are what you’d call an irreversible investment that can’t easily be abandoned and whose cost can’t fully be recouped upon resale,” Yaros said. “When uncertainty is high with no reprieve in sight, there is a strong incentive to defer investment decisions related to new structures until the situation is clearer.”
Pat Kearney, partner and co-chair of Duane Morris’ construction group, told Bisnow that contractors that have already agreed to a lump sum price might not have contract language that allows for an adjustment. Those contractors will have to eat additional costs or default on their obligations.
“These unforeseen costs will likely cause disputes within the industry similar to the disputes associated with Covid,” Kearney said.
Trump’s ability to unilaterally impose sweeping tariffs was temporarily restored late last week, less than 24 hours after a judge said the tariffs had no legal justification. A ruling from the United States Court of Appeals for the Federal Circuit allowed the White House to keep its heftiest tariffs in place while the court mulls the appeal of a lower court’s decision that had blocked the taxes last Wednesday.
The Supreme Court is expected to eventually weigh in.
“Overall, the tariffs will be passed on to the construction projects,” Kearney said. “It will be more expensive to construct a project, and, for some owners and developers, that changes the economics.”