The idea is the latest in the seesaw of tariffs that homebuilders are having to navigate in Trump’s volatile trade policy proposals. The president’s position on duties against any given country and any given good seems to change on a daily basis, if not hourly.
On Thursday, builders thought they were getting some relief when Trump agreed to delay a 25% duty on both Canadian and Mexican goods that fall under the United States-Mexico-Canada Agreement (USMCA), the replacement to the North American Free Trade Agreement (NAFTA) that Trump implemented in July 2020.
USMCA covers a number of vital construction inputs, such as lumber, appliances, hardware and glass. The pause will run until April 2, the same day Trump plans to impose global reciprocal tariffs, setting up a high-stakes game of chicken at the beginning of next month.
A 25% tariff on imports of steel and aluminum — also vital construction materials — is scheduled for March 12.
On Friday morning, the National Association of Home Builders (NAHB) touted the delay as a win for the industry in a blog post that also warned of the impact on home prices due to an ongoing trade war.
The trade group estimates that a 25% tariff on Mexico and Canada — in addition to the 20% tariff already imposed on China — would raise the cost of imported building materials by $3 billion. Much of that would inevitably be paid by American homebuyers. A JBREC report also suggests tariffs could raise borrowing costs.
The uncertainty alone is prompting homebuilders to act. NAHB said it’s received anecdotal reports that builders are planning for an increase in construction costs to the tune of $7,500 to $10,000 on the average new single-family home.
If Trump allows the 25% tariffs on Mexico and Canada to take effect April 2, NAHB estimates that the overall tariff rate on Canadian lumber imports could shoot as high as 50% by the fall and even approach 60%. The U.S. Department of Commerce has already imposed a 14.5% tariff on Canadian lumber.
NAHB previously made a plea to the Trump administration for tariff exemptions on building materials, claiming that such tariffs would contradict Trump’s day-one executive order that calls for emergency home-price relief. That exemption hasn’t materialized, but on Wednesday, Trump allowed for a one-month pause on automobile tariffs from Mexico and Canada.
The tariff saga does not lack for drama. At the beginning of February, Trump paused the 25% tariffs on Canada and Mexico in exchange for minor concessions on immigration enforcement and fentanyl trafficking — issues that are not related to trade policy.
That pause expired on Tuesday. While the 25% duties on Mexico and Canada remain in effect, the USMCA exemptions allows Trump’s own trade policy to take precedence over the current back and forth.
The day-to-day changes are taking a toll on builders. Citing tariffs, the NAHB/Wells Fargo Housing Market Index (HMI) for February fell five points relative to January.
Given that Trump frames tariffs on Mexico and Canada in terms of immigration and drug trafficking, it’s hard to know what his end game is.
With Canada, it’s particularly puzzling. The northern border has nothing close to the flood of migrants that the southern border gets. According to the U.S. Customs and Border Patrol, less than 1% of the fentanyl seized in the U.S. comes from Canada, while 98% of it comes from Mexico.
Politico reported Wednesday that a source close to the administration called the tariff drama “the greatest show on earth,” advising that people “stay tuned, because you never know what tomorrow’s gonna bring.”
The pressure Trump is putting on Mexico, however, is having some effect. On its podcast, “The Daily,” The New York Times reported that fentanyl production in one Mexican state has come to a complete halt as a result of additional law enforcement deployed since the tariff drama began.
While it’s unclear how long that will last, the question is whether tariffs are the appropriate tool for extracting concessions given the repercussions they’re having on American businesses, global markets and international relations.
