Tariffs to impact building industry

The subject of tariffs has dominated the international trade discussion, most recently with a newly finalized list focused on imports from China published by the administration on June 15.  Tariffs, sometimes referred to as duties, are essentially taxes that are imposed by governments on imported products. The result of the U.S. government tariffs is an increase in the pricing of the targeted products in the U.S. market, often allowing domestic manufacturers of competing products to raise their prices — providing for a larger margin while still maintaining a price advantage. Costs to consumers of the targeted products increase. This article provides an overview of the various tariffs the administration has imposed recently, with specific focus on the impact on key building components.

Canadian softwood lumber countervailing duties

On Dec. 7 2017, the administration affirmed a U.S. International Trade Commission (ITC) recommended tariff (21 percent effective rate) on Canadian softwood lumber, in response to a petition filed by a coalition of U.S. lumber firms claiming injury to their industry. The ITC determined that Canada subsidizes its forestry industry and dumps lumber on the U.S. market at unfairly low prices. These tariffs went into effect at the end of 2017, and Random Lengths, a publication covering the lumber market, points to the resulting nearly 80-percent increase in the cost of 1,000 board feet of Canadian lumber in the past 12 months. The National Association of Homebuilders reports that since the beginning of last year, rising lumber costs have added nearly $9,000 to the price of a typical new home and more than $3,000 to the price of a typical multi-family unit. Canada has challenged the U.S. duties at the World Trade Organization (WTO) and the matter is currently under review by a dispute settlement panel. Meanwhile, in a letter dated June 12, 2018, a bipartisan group of 171 House lawmakers encouraged the administration to “redouble your efforts to reach a new softwood lumber agreement” with Canada, which could provide a means for the administration to roll back the tariffs and the resulting disruptive trade patterns and increased costs to industries that rely on softwood lumber.

Solar panel countervailing duties

On Jan. 22, 2018, the Administration approved with some amendment an ITC recommendation for a 30 percent tariff on solar panels produced outside the U.S., which gradually drops to 15 percent over four years. The first 2.5 gigawatts of imported solar cells will be exempt from the tariffs. The ITC had determined that imported panels were harming American manufacturers in its decision on a petition filed by two solar U.S. solar panel manufacturers. While the tariffs will help to shield the two struggling U.S. manufacturers temporarily from foreign competition, solar developers and installers were highly critical of the tariffs. Recent reports are emerging that solar developers have delayed or canceled billions of dollars in large installation projects. The European Union and China have both challenged the U.S. duties at the WTO in February, however the results of these challenges have not yet been reported.

Aluminum and steel Section 232 national security tariffs

On March 23, 2018, the President imposed tariffs totaling 25 percent on steel and 10 percent on aluminum imports, citing national security concerns under Section 232 of the Trade Expansion Act of 1962. The administration granted South Korea, Australia, Brazil and Argentina permanent exemptions. Canada, Mexico and the European Union had been granted temporary exemptions, which were discontinued May 31.  The tariffs are levied on multiple categories of steel and aluminum products, all of which are used in the built environment, if not as part of the physical elements of the building, then as part of the equipment used to construct buildings. Implications on construction prices are becoming apparent. The American Iron and Steel Institute reports that 43 percent of steel shipments in the U.S. are construction-related. The National Association of Realtors estimates a 0.2-percent increase in construction prices as a result of the tariffs. A study released in March by the economic consulting group, Trade Partnership, projected that 28,000 jobs could be lost in the construction sector alone.

In addition to the taxes on imported steel and aluminum products, the countries targeted by the tariffs have responded, frequently by targeting products made in key U.S. congressional districts, such as Kentucky bourbon, Harley Davidson motorcycles and a wide variety of agricultural products. Several retaliatory tariffs also impact building components. For example, China imposed a 25 percent tariff on scrap aluminum exported from the U.S., and effective July 1, Canada will impose counter-tariffs of 25 percent on shipments of U.S. steel and 10 percent on aluminum. The European Union has filed a case at the WTO challenging the national security tariffs, and is developing a list of products that would be subject to retaliatory tariffs as soon as June 20, reportedly to include 25 percent tariffs on aluminum and iron. WTO cases have also been filed by Canada, Mexico, India and Norway.

China Section 301 tariffs

On March 22, 2018, the President announced that the U.S. would impose tariffs on approximately $50 billion worth of Chinese products in response to the unfair trade practices related to intellectual property and technology transfer policies found by a Trade Act of 1974 Section 301 investigation undertaken by the Office of the U.S. Trade Representative (USTR). On April 3, 2018, USTR released an initial list of 1,300 items that would be subject to a proposed tariff of 25 percent. Following publication of that list, USTR held three days of hearings from May 15–17, during which many industries lobbied for the inclusion of their products on the lists to provide protection from Chinese competition. On June 15, USTR issued its final list, which is set to take effect on July 6, 2018, and which is likely to have a much larger impact on the building industry than the iron and steel tariffs. The list includes various types of machinery used in the construction industry (cranes, forklifts, bulldozers, soldering/welding equipment, etc.), as well as construction inputs such as PVC, polymer tubes/pipe/hoses, iron or steel columns/pillars/posts/beams/girders, steel grating, structural iron and steel, boilers, generators, pumps, parts for furnaces and water heaters, water filters/purifiers, concrete/mortar mixers, gaskets and mechanical seals, fuses and circuit breakers, electrical switches, connectors, and terminals, and cables. China has announced that it will impose retaliatory tariffs, composed primarily of agricultural products, vehicles, chemicals and aircraft.

The International Code Council will remain engaged on these evolving tariff issues and provide future updates as the U.S. trade posture continues to evolve. If you have questions, contact Judy Zakreski at jzakreski@iccsafe.org.