Building Materials Rise, but Not Affecting Developments Yet
By: Timothy Boone
The Trump administration’s tough line on trade has caused the cost of some building materials to rise by as much as 20 percent, but local construction officials have said that’s not having any impact on any proposed developments.
According to information released earlier this week by the Associated General Contractors of America, the producer price index for some aluminum products was 20 percent higher in June than the year before. Lumber and plywood was 18.3 percent more, the association said, while steel products were 12.3 percent higher.
Ken Naquin, chief executive officer with the Louisiana AGC, said he’s hearing reports of similar increases from his members. “Aluminum, rebar, they’ve jumped up considerably,” he said.
Higher tariffs on Canadian lumber have been in effect since 2017, as part of a long-standing trade dispute over timber prices. The U.S. imposed steel and aluminum tariffs on imports from Canada, Mexico and the European Union on May 31. Last week, the U.S. started applying tariffs on Chinese goods, including a range of steel products. Another $200 billion in tariffs on Chinese goods has been proposed.
Ken Simonson, chief economist for the AGC, said some of the tariffs go back to 2016, when the Obama administration accused the Chinese of “dumping” subsidized steel in the U.S. market. Traditionally, when American firms say their industry has been hurt by foreign countries selling below-market-priced products, they file a complaint with the U.S. Commerce Department. The agency conducts a study and determines if any additional duties should be leveled on the imported products.
But Trump, who made trade a key issue in his presidential campaign, is also taking steps to protect the U.S. steel and aluminum industry. He’s saying tariffs are needed to keep the industry healthy, in case the U.S. needs to build tanks and weapons for a military crisis.
The problem is that when contractors sign a contract to build a highway, a shopping center or an office building, a firm delivery price is written in. And these contracts are signed before any material is purchased. “There’s no contractor that stockpiles a whole building’s worth of stuff,” Simonson said. “It’s always a guessing game.”
That means whenever there are unexpected price increases, the contractor gets stuck. “If you don’t guess right, that comes straight off the bottom line,” he said.
The AGC noted that while the index for all materials used in construction projects, a measure that includes fuel, is up 9.6 percent over the past year, the price of new construction is up 4.3 percent. That means contractors are absorbing the higher costs.
And while the tariffs are aimed at imported materials, the cost of lumber, steel and aluminum produced in the U.S. has risen in "lock step," Simonson said.
“The minute that a tariff is announced, domestic producers increase their costs,” he said.
In Louisiana, there aren’t escalation clauses in construction contracts, so contractors don’t have a way out, Naquin said.
“They’re just hoping the next time they bid out a project, they can add the increased costs and make up for it,” he said.
Despite the higher costs, Naquin said he hasn’t heard any reports of projects being delayed. And the supply of building materials hasn’t been affected, like what happens in the aftermath of a hurricane or natural disaster. “It’s just an increase in cost,” he said.
Connie Fabre, executive director of the Greater Baton Rouge Industry Alliance, which represents industrial manufacturers, said she hasn’t heard any reports of petrochemical construction projects being affected by the higher material costs. “I’m not hearing about that yet,” she said.
Simonson said he expects more contractors will put in higher bids for work, or bigger contingencies in their contracts.
“Now that there’s this unpredictability, you may see things like a school district that planned to build six new schools only do four,” he said. “Or some private projects may get delayed.”