Is the Trade War with China Causing Problems for the Construction Industry?
After the political back-and-forth between the United States and China, the current tariff rate sits at 25% on $250 billion in Chinese products according to Kim Slowey of Construction Dive. We know that tariffs increase cost, but what does that mean for those in the construction industry?
Ken Simonson, the chief economist for the Associated General Contractors of America, (AGC) said it best:
“Sometimes just the threat of an increase is enough to cause a surge in demand trying to beat the actual price increase.” Whether it’s the actual increase in tariffs or just the uncertainty of the future, construction costs seem to be increasing for many contractors across the nation.
Here are five reasons that this uncertainty could impact the construction industry:
- Other manufacturers can’t compare. A lot of manufacturers in the US, as well as other countries, can’t match the cost-effectiveness and productivity of the Chinese manufacturers. Many companies lack the capacity, which makes it much less likely that they can handle the large volume that many construction projects depend on.
- Contractors will need material substitutions or process redesign to keep costs down. Many construction companies are looking for alternative processes and/or resources to decrease the need of their Chinese-based products, or eliminate them altogether. According to Simonson, if contractors can reduce the necessity of Chinese building materials through a project redesign, they may be able to decrease the cost of their project. Of course, this depends on several factors, including the cost, labor requirements, and type of material they use.
- Chinese-backed projects in the US could flatline. There are many substantial construction projects in the US that are backed by Chinese investors or clients based in China, and these projects could be majorly impacted or never completed. In other words, the friction between the two countries could halt construction, and create a domino effect for many industries in the US.
- The impact on manufacturing businesses in the US will directly affect the construction industry. The tariffs have also severely impacted many manufacturing businesses in the US. which will likely cost the construction industry in the long run. If these companies aren’t selling as many products, it stands to reason that they’re creating less. Less production leads to a decline in business and a reduced need for facilities; which could lead to a decrease in construction projects.
- Tariff exclusions are not guaranteed. In some cases, there isn’t a domestic substitute for the foreign-made material needed for a project. When this happens, a company can apply for an exclusion from the tariff. If the company can prove that a substitute isn’t available and can’t be produced in the US., there is a greater chance that an exclusion will be granted. Unfortunately, exclusions aren’t always guaranteed.
This game of chance has the construction industry on alert. There are certain actions businesses can take to prepare for a recession or boom in the economy, but there is no preparation for uncertainty. Don’t let this period of doubt leave you mentally drained and financially unprepared. At Harris, Hardy & Johnstone, we want to help you build the foundation of security for your construction business.
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