Trump’s China tariffs are already hitting the housing industry

The current U.S-China trade war—and the tariffs-by-tweet that have shaken global markets— have impacted industries across the economy as companies try to navigate new tariffs, pricing, and even requests to adjust their supply chains.

The housing, home renovation, and even real estate market aren’t immune to these pressures. As Vox reported, President Trump announced an additional 10 percent tariff on $300 billion in Chinese products in August, which went into effect on September 1. When combined with previous tariffs, it effectively taxes nearly all Chinese goods.

As the administration continues to discuss levying new tariffs as part of its ongoing dispute with China, the escalating trade war is already touching many of the raw materials the housing industry depends on; the current 25 percent tariff on imported building material that went in effect in May has been called a “$2.5 billion tax on housing” by the National Association of Home Builders. In California, arguably the state with the most severe housing shortage in the country, the California Building Industry Association estimates tariffs have added $20,000 to $30,000 to the cost of an average-size new home, putting some new homes out of reach of potential buyers and complicating financing for existing projects.

Trump has said he wants to raise this tariff an additional 5 percent, but the increase didn’t appear in the latest notice from the Unites States Trade Representative, which precedes any policy shift.

“Additional tariffs on a country like China, where we get many of our construction products, are an additional tax on homes,” Robert Dietz, chief economist at NAHB, told Housingwire. “This comes at a critical time because we currently are at a 10-year low for housing affordability.”

Tariffs are part of a lot of factors hitting the market all at once

While increasing tariffs can have a substantial impact on the economy, it’s important not to overstate their influence. The trade war is taking place just as numerous other factors are putting pressure on the housing market, according to Holly Tachovsky, CEO of BuildFax, a company that collects, compiles, and sells data about the history and condition of commercial and residential property. Remodeling spending has spiked since the Great Recession, a string of hurricanes and natural disasters has absorbed construction industry resources, and material prices are already high, compared to historic levels, having risen 20 percent since 2008.

“Tariffs are one factor in a handful that are leading to the pressure we’re in,” says Tachovsky.

Still, housing and construction are taking a hit

Many of the products that go into a remodeling project or building a new home or apartment building—cabinets, flooring, plumbing fixtures, major appliances, lighting, and tile—have already been impacted by tariffs, specifically a 10 percent tariff on imported building materials, and will be further impacted by recent increases. The tariffs on furniture alone may end up costing American consumers $4.6 billion annually, according to an analysis from the National Retail Federation.

Rising costs pose a particular challenge when it comes to affordable housing, since lower margins mean it’ll be harder for builders and buyers to absorb the additional costs that come from the tariffs. And with the economy facing a potential recession that may impact real estate sales, housing and construction are already feeling the impact of a slowing market.

“The cost of a new home keeps rising as the cost of inputs keep rising,” says George Ratiu, senior economist at realtor.com. The impact of the tariffs on the housing industry is likely to be in the billions of dollars.

More problems for malls and merchants

As tariffs encroach on more categories of consumer goods, the retail industry is poised for a big earnings hit. That means more bad news and bankruptcy for chains, and a challenging environment for commercial real estate, according to Scott Tross, a lawyer at New York-based firm Herrick, Feinstein, who specializes in retail foreclosures.

“The single most distressed sector in the commercial real estate market is the retail space, and that’s been true for awhile,” he says. “These tariffs are like adding fuel to the fire.”

As rising online sales continue to batter established brands—reports suggest Forever 21 is nearing a bankruptcy filing, in a year that’s already seen mall staples such as Charlotte Russe and Gymboree fold—increased tariffs only add to the sector’s worries. Roughly 40 percent of all clothing and 70 percent of shoes sold in the U.S. are made in China, per the American Apparel and Footwear Association, and a recent UBS report says that the President’s recent threat to impose additional tariffs on finished consumer goods will impact specialty retailers, department stores and low-end retailers (i.e. dollar stores), especially those selling apparel, footwear, electronics, and toys.

“It’s a negative development for retailers, and because of that, it’s also a negative development for people who rent to retailers,” says Tross.

Could it be working?

Some economists believe that, despite official U.S. government economic studies showing that U.S. consumers are paying a price in the form of “higher prices and reduced consumption,” the tariffs may work over the long term. Dr. Ravi Batra, professor of international economics at Southern Methodist University, believes that the U.S tariffs on Chinese goods will force China to cut prices, because they’re so dependent on the U.S. market. There have also been benefits to the U.S. economy, he argues.

“Inflation in the U.S. has come down, and they’re talking about the inflation rate coming down again,” he says.

For Batra, the real danger here isn’t the tariffs or a trade war, but excessive debt in the United States, especially student and credit card debt, as well as the potential for a recession.

“The housing and real estate market may be in danger from other things, such as recession,” he says. “The trade war itself is not going to do it.”