‘Reciprocal’ tariffs would create chaos for homebuilders

But Trump outdid himself last week by issuing a memo calling for “reciprocal” tariffs that would impose the same duties on a country that they have on the United States. So if Country A has a 25% tariff on American Teddy Ruxpins, the U.S. would impose a 25% tariff on that country’s Teddy Ruxpins, too.

On top of that, he floated a 25% tariff on all lumber imports, and he imposed a 25% tariff on steel and aluminum, both of which hit homebuilders directly. With all the variables in play, the industry is hoping for clarity sooner than later.

“There isn’t enough certainty,” said National Association of Home Builders (NAHB) President and CEO Jim Tobin. “Are we going to be back in the same cycle a month from now? We’re in a pause rather than either going forward with tariffs or doing away with them.”

Citing data from the Harmonized Tariffs Schedule of the U.S., The Wall Street Journal notes that there are 13,000 line items with about 300 countries in the trade schedule, good for 2.6 million individual tariffs. 

While nothing close to that number are materials used to construct a home, the sheer magnitude of such a policy would create chaos for homebuilders trying to navigate an entirely uprooted environment.

Even the residual impact unrelated to building materials could be profound. Adding to the unpredictable nature of it is the logistic impossibility of implementing such a policy, meaning any attempt to impose these tariffs might be selected on the basis of things that are experienced as random.

And if the tariffs are truly levied one-for-one, some tariffs would actually drop if the U.S. presently has a higher tariff rate imposed on a country than it does on the U.S. The number of variables in play would be impossible for homebuilders to game out, particularly smaller ones.

Homebuilders are relatively better prepared for the possibility of tariffs on lumber, Canada, Mexico and China. As a result, homebuilders can mitigate the problem in the short term by pre-buying lumber or diversifying supply lines for appliances. 

This is a taller task for different materials. According to data provided by John Burns Real Estate Consulting (JBRE), homebuilders imports 31% of sawmill wood products, and Canada accounts for 73% of those imports. Builders import 73% of small appliances, and 67% come from China.

A report from JBRE this week comes with many warnings, the obvious one being that these tariffs would increase the cost of building materials. But borrowing costs could also rise on economic uncertainty facing builders. Housing demand would likely drop because of higher prices on so many things, and supply chains could be disrupted. JBRE recommends diversifying supply chances and finding efficiencies as antidotes.

Homebuilders are well aware of the risks. The NAHB/Wells Fargo Housing Market Index (HMI) fell five points in February to 42 as tariffs weigh on the industry.

NAHB has issued many pleas to the Trump administration for tariff exemptions for homebuilders, arguing that they would raise the price of newly built homes and work against Trump’s memo on emergency home price relief.

It remains to be seen whether Trump is serious about the tariffs or is just using them as a bargaining chip, but there are enough potential tariffs in play to keep homebuilders sweating for the foreseeable future.