No sooner have organizations in the residential construction sector begun to get their heads around the enormous, complicated, mostly exhilarating impacts and implications of a $1.5 trillion tax cut for companies and individuals than a moment for furiously redoubled recalculations arises once more.
Whereas the Tax Cuts and Jobs Act might be considered a win, resulting for particular corporate entities, anyway, in a one-time windfall–minimally, the difference between a 35% corporate tax rate, and the bold, new 21% rate–the thread of tariffs, and the potential global trade war chain reaction could more than erase the gains in higher prices for commodities.
One in six dollars spent domestically on steel and aluminum is expended by American construction firms, and adding 25% to the cost of imported commodities will only raise the price for consumers of steel and aluminum.
The Wall Street Journal’s editorial board, writing Friday, calls the proposed international trade aggression, “Trump’s Tariff Folly,” and the normally-pro Trump editors mince no word in noting:
Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms.
In relative, President Trump news cycle time–from when he first floats a typically extreme, dizzying position that sets both supporters and opponents into intense vibrating, to when he takes his final, final decision on the matter–it’s early to say where we’ll wind up on the tariff’s matter. A negotiator at every turn, no major policy proposal, action, and resolution would likely emerge as a pronouncement that doesn’t factor in an almost chaotic melee of give and take that serve both to clarify the matter at hand, and to illuminate how he may leverage this issue to make gains in others he might otherwise be holding a weaker hand of influence.
Political calculus aside, builders don’t like the looks of the plan–especially at a moment they’ve pushed collective investment into increased capacity and a greater flow of community openings to meet lower price bands of home buyers, and are now exposed, needing all the help they can get from continued job formations, higher wages, and healthier consumer confidence.
National Association of Home Builders chairman Randy Noel issued this message on builders’ behalf on Thursday, as businesses, economists, and other stakeholders were digesting President Trump’s seemingly impulsive announcement of the tariff plan last week:
“It is unfortunate that President Trump has decided to impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports. These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders.
“Given that home builders are already grappling with 20 percent tariffs on Canadian softwood lumber and that the price of lumber and other key building materials are near record highs, this announcement by the president could not have come at a worse time.
“Tariffs hurt consumers and harm housing affordability. We hope the administration will work quickly to resolve these trade disputes regarding lumber and steel so that businesses and consumers have access to an adequate supply at a fair market price.”
The effects of newly imposed tariffs–direct and ripple–have the goal of narrowing America’s trade deficit and allowing U.S.-based manufacturing and industrial companies protection from foreign sources dumping cheaper materials into the supply chain.
Their collateral and perhaps unintended consequences, however, are numerous and profound, and hit very close to home for home builders trying to capture momentum for a housing recovery that, to date, promises at least one major thrust upward and forward. Not only that, the initiatives could devolve into a domino-effect of global reactions and retaliations that could halt recovery in its tracks. New York Times correspondent Jim Tankersley notes:
The tariffs would almost certainly provoke a response from America’s trading partners — and not just China and Russia, because they would apply to every other country. On Friday, the European Union threatened to retaliate by imposing tariffs of its own on some goods from America, including bluejeans, bourbon and motorcycles.
If the back-and-forth stopped there, the American economy would lose 0.1 percent of its output this year, said Mark Zandi, the chief economist at Moody’s Analytics. That loss would cost the country 190,000 jobs.
Zandi carries the plausible chain reaction scenario even further, suggesting that, while less likely, a full global trade war, with all its costly, destructive, and distracting impacts, could “carry much higher risks, including nearly four million lost American jobs.” The endgame there? A global recession.
What baffles many–whether or not they support the President’s agenda to re-spark American dynamism–is his apparent ability–within that agenda–to champion tax cuts and deregulation on the one hand, in a bow toward jobs and enterprise. On the other hand, policies that would choke off access to guest worker immigration programs and trade wars seem to run counter to the push for dynamism. After the big win on a historic, potentially legacy-making Tax Reform, will tariffs and the way they could wreak economic and financial havoc make a Pyrrhic victory of his legislative success?
With housing at such a pivotal moment–not a slam-dunk to fully engage not just the ready-willing-and-able buyer but the more inclusive total available market, but showing positive signs of doing so–one can only hope that the Trump negotiation spectrum runs from initial rhetoric and posturing across a full consideration of all the pluses and minuses of his first position, and a resolution that bears a strong resemblance to the Hippocratic Oath tenet: “first, do no harm.”
