How will Steel and Aluminum Tariffs Impact the Buildings Industry?

08/17/2018 | By Justin Feit

Five months after his March pledge to impose tariffs on steel and aluminum imports, President Trump was optimistic about the long-term success of the move, according to an Aug. 15 interview with the Wall Street Journal. The president acknowledged that steel and aluminum prices may be “a little more expensive” in the short term, but that ultimately, competition faced by American steel and aluminum products will be “internal, like it used to be in the old days when we actually had steel, and U.S. Steel was our greatest company,” the Journal notes.

However, critics cite retaliatory tariffs and higher prices for affected goods as evidence that the tariffs are hurting, not helping, U.S. industry. In the wake of the initial announcement, which placed a 25 percent tariff on steel and a 10 percent tariff on aluminum, U.S. allies impacted by the policy implemented retaliatory tariffs.

Canada, for instance, levied tariffs on U.S. imports from steel and aluminum to whiskey, orange juice, denim jeans and Harley-Davidson motorcycles. Meanwhile, 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.”

The White House's plans to put tariffs on steel and aluminum imports.
How will these steel and aluminum tariffs impact the buildings industry?

Supporters claim that jobs will be created in the steel and aluminum production industries, but the trade policy could also have detrimental effects for facilities management.

The tariffs are designed to improve production in the U.S., but results on that front have been mixed, according to the Wall Street Journal. The short-term rise in material prices that President Trump cited has become a reality since the tariffs took effect. Some steel manufacturers have expanded domestic production, but others remain reliant on imported metals. 

With many building systems reliant on these materials (roofing, HVAC equipment, vertical transportation, etc.), facilities managers hoping to make changes could face serious challenges. Even basic materials haven’t escaped the impact; one Missouri-based factory that produces roughly half of the nails made in the U.S. said that the tariffs lowered profits by nearly half, resulting in layoffs for more than 100 workers.

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Broader Economic Implications

The tariffs resulted in $1.4 billion in new revenue, according to a recent report from the Congressional Research Service. Those earnings will likely continue to rise as the tariffs against allies continue and new tariffs against Turkey (which is now facing a steel tariff of 50 percent) and other countries take effect.

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.

However, critics of the tariffs paint a bleak portrait for the U.S. economy, 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 tariffs took effect suggesting that the wide-reaching implications of these tariffs are expected to cause more harm than good to the overall economic health of the U.S. 

More than five jobs would 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, there is considerable doubt from economists that the U.S. will be able to produce enough steel and aluminum 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 has eaten more than $3 million of steel price increases since May in an attempt to keep the cost of production down while it waits for the  Department of Commerce to grant it an exclusion to the tariffs, the company's owner recently told CNBC. The department has received more than 33,000 exclusion requests since Aug. 6 and has approved 1,428 of them and denied 702, leaving tens of thousands of requests unanswered.

Industry Opposition to the Tariffs

With these expected outcomes, the buildings industry is on shakier ground. Industry experts are voicing their opposition, 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,” state American Institute of Architects (AIA) president Carl Elefante, FAIA, and executive vice president/chief executive officer Robert Ivy, FAIA. “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 will be far more difficult. Moreover, these design challenges will directly affect contracting work for construction projects.

“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.

“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.”

Some experts believe that Canada and Mexico might receive an extended exemption as leaders from the three countries renegotiate NAFTA, whereas it’s clear that President Trump is taking a harder line on the EU. 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.

Justin Feit was associate editor for BUILDINGS. Janelle Penny, senior staff writer for BUILDINGS, contributed to this report.

This article originally appeared on on March 8, 2018, and was updated Aug. 17, 2018 and May 31, 2018.

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