Some in the industry say the situation with China has been up in the air for some time now (Credit: iStock)
The ongoing trade war between the U.S. and China took a turn for the worse Friday, when the White House more than doubled tariffs on $200 billion worth of Chinese goods. Amid faltering negotiations, it hinted at further tariffs Tuesday. For the real-estate industry, which relies on China for a big chunk of its building materials, the moves create a disturbing uncertainty.
Some in the industry say the situation with China has been up in the air for some time now, and the industry has already absorbed the impact.
“The threat of tariffs, and actually tariffs themselves, have been in the market now for a while,” said Brett White, CEO of Cushman & Wakefield, in the company’s earnings call last week. “And as we mentioned last year when this question came up, and I’ll just reiterate today, we haven’t seen any impact on our business either in greater China, or anywhere else for that matter really, based on the existence of increased tariffs or the threat of increased tariffs.”
Daren Hornig, managing partner of Hornig Capital Partners, said the broader questions surrounding trade were more worrying than the specific costs of materials like steel and glass.
“From a development perspective, you’re doing your deals two to four years out, so you want more predictability and less volatility,” he said. “If we could just put this one behind us and get this trade deal resolved, that would make a lot of people globally very happy.”
David Schwartz of Slate Property Group said the two countries’ actions have already driven up prices, to the point where his firm is now looking to buy more products domestically, or at least from countries other than China that aren’t subject to the tariffs.
These higher costs will ultimately hit the consumer via pricier rents and condos, Schwartz said. The increased jobs that may come from builders buying more materials domestically could be offset by higher construction costs that shrink projects, he added.
“There probably are some areas that will benefit,” he said. “But if overall costs go up, think about how many construction jobs are lost and how much more the end consumer needs to pay.”
John Robbins, who oversees U.S. real estate for consulting firm Turner & Townsend, said that contractors are already hedging their bets about future tariffs.
“We’re getting budget submissions from contractors that are building in some sort of allowance for tariff impacts, that obviously are just being passed on to owners, to clients that are going to be the ultimate occupier or user of the space,” Robbins said.
President Trump threatened Tuesday to extend the tariffs to another $300 billion in other goods, which would essentially mean a 25-percent levy on most imports from China. Meanwhile, the Chinese government has retaliated with tariffs impacting $60 billion in U.S. goods, including building materials like bricks, wood flooring, pipes and tubes.
Trump tweeted that “we can make a deal with China tomorrow,” later adding that “this must be a great deal for the United States or it just doesn’t make any sense.”
We can make a deal with China tomorrow, before their companies start leaving so as not to lose USA business, but the last time we were close they wanted to renegotiate the deal. No way! We are in a much better position now than any deal we could have made. Will be taking in…..
— Donald J. Trump (@realDonaldTrump) May 14, 2019
When the time is right we will make a deal with China. My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense. We have to be allowed to make up some…..
— Donald J. Trump (@realDonaldTrump) May 14, 2019
Maurice Regan, CEO of general contractor J.T. Magen & Co, said the White House didn’t seem to have any kind of cohesive strategy.
“Everything seems to be reactionary: Quick Draw McGraw, make something up, and all of a sudden there are these huge consequences from even just a tweet or a statement,” Regan said. “We’re kind of way down the food chain between our government and world superpowers playing a game of bluff, really.”
But he stressed the industry has weightier matters to grapple with.
“I think there are bigger pressures on the cost of construction at the moment, such as shortage of labor, the demand outstripping the supply, and limited good resources,” he said. Regarding tariffs, he estimated that “overall it’s going to be a two, three, or four percent impact – I’m guessing two – and I don’t see any of my clients reacting about this. It’s something that we are not actually going to have any control of.”
Others in the industry sounded more dire warnings.
“I think the minute that it’s announced it starts impacting the business, when it’s to the order of magnitude that they’re talking about at 25 percent,” said Richard Wood, CEO of Plaza Construction Group. “There are certain products where the delta may still be great enough that it still may pay to actually buy in China. But it’s going to be a much closer look than it was a year ago.”
“Beyond just metal products, we’ve even had situations where ceramic tile coming from China was held up at customs because no one was sure if it needed a tariff applied,” Robbins added. “So as you can imagine, there was a schedule impact because the contractor couldn’t get the tiles out of customs.”
Ultimately, it all comes down to the uncertainty. “Even if you’re planning a project down the road, nobody’s a clairvoyant and can predict whether or not these tariffs are going to be in effect when you’re actually getting ready to ship and are exposed to those tariffs,” Wood said.
“You have to consider those things and take them into consideration and not take the risk. So, yes, it will impact your decision making.”