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Trade Tension

Trade Tension and Construction Outlook

The ongoing trade tension between China and the United States could have a major impact on the construction industry here in the U.S. if there isn’t a deal reached within the next few months, GlobalData has reported.

Many goods from China, such as aluminum, Canadian lumber, and steel, are needed for home construction and commercial buildings. Since last September, these items have been subjected to a 10 percent tariff.

A construction analyst at Global Data, Dariana Tani, said that higher tariff rates will increase the costs for imported building materials. In turn, the higher costs could cause decreases in job creation and growth in the building industry.

This will affect the spending on infrastructure and will cause disruption of the supply chains and operations of companies. This will also reduce investment in the construction industry and will put construction loans at greater risk.

Curtailing New U.S. Construction Projects

U.S. products subjected to Chinese tariffs could affect the new construction projects based in the U.S. An example of how this came into play took place in October 2018 when a liquefied natural gas (LNG) export terminal being built in Louisiana was postponed by Australia’s LNG Limited following a Chinese-placed 10 percent tariff on all exports from U.S. LNG.

GlobalData’s Tani said that about one-half of the U.S. import value is from intermediate goods, including machine parts, capital equipment, raw materials, and industrial inputs, which is the category into which most Chinese imports that are subjected to the tariffs fall into.

This tariff rate on these products, is like taxing U.S. contractors by increasing the costs of their building materials. At the time of the report, steel producers can’t increase steel production to equal the demand to match the production of foreign steel suppliers. If contractors make the switch to a local U.S. producer, they will face serious delays in receiving the needed building supplies.

This situation might leave contractors in a situation where existing suppliers cannot source what they need so they will need to find a new supplier and pay higher material costs. Contractors and subcontractors will be forced to charge higher prices as well as price risks in their bids. To prevent increasing customer costs, contractors might start cutting corners, which could compromise durability and safety in projects.

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