The global construction business is seeing tough times in 2018. The U.S. government is increasing foreign taxes. New Zealand is going through a global level construction industry crisis.
According to a new BIS Oxford industry forecast, political uncertainties are likely to slow down the construction industry. The year is not looking good for electricity, water, oil and gas, and roads and railways either. Let’s get back to U.S. industries.
In November last year, President Trump imposed a 21% import duty on timber from Canada. This has increased cost price for builders. Since the implementation of the new figures this January, homebuilders have been under stress due to the increased tariffs.
In a way, it is a good thing for American suppliers because American timber is now cheaper and more in demand. Canadian softwood is indispensable though. Smaller homes go for Canadian wood for frames and roofs. Last year, Canadian suppliers accounted for 28% of all the softwood that was purchased in the US.
This is bad for the construction market because U.S.’s own raw materials aren’t enough to meet the demands of the market. A price surge is inevitable no matter what route is taken. Construction needs wood and people cannot afford it anymore.
Smaller homeowners are now going for other material like metals and alloys for door and window frames and stairwells. Homeownership plans have been stalled for many, in the hope that things will change for the better. The sudden surge in prices is making people rethink their home ownership plans.
The NAHB estimates a $9,000 surge in the expenditures of single families for smaller homes. For constructions for multiple family homes, the surge is around $3,000 per family. The Association wants the President to review his tariffs and come to a more agreeable stance with Canada.
The U.S. lumber industry is not designed to sustain a rapidly growing rate of construction work. The increased tariff is hurting Canadian exporters. U.S. businesses too are slowing down. The domestic lumber industry in the U.S. is growing rapidly but the pace is simply not enough compared to the potential of the construction industry.
So, if everything is going wrong for exporters and for domestic industries, why is there still no unanimous demand for a reversal in the duties? The reason is the biggest lumber industries in the U.S. are benefiting from it. They own millions of acres in the U.S. and in Canada.
Companies like Weyerhaeuser and West Fraser are benefiting from both ends. These bigger companies are sustaining their own business. These companies, irrespective of whether they are based in Canada or the U.S., are getting the best of both ends.
The smaller companies are attempting to diversify in materials. For example, using metal for door and window frames and stair railing instead of wood. Lumber from the domestic market is also expensive due to the growing demand.
The U.S. Lumber Coalition claims that the domestic market has almost bridged the gap created by the decline in Canadian imports. The business is booming for domestic wood companies.
This is what the President had in mind. To create American jobs, to take back the country for the Americans. But how long will this sustain? Softwood is a Canadian specialty and the larger companies build for the expensive deals in the public as well as private sectors. The high profile clients believe in what they have trusted so far.
The Trump Administration is not backing down on its policies. It wants to increase taxes on Chinese imports as well. The problem is the U.S. domestic wood industry is not equipped to produce the required amount of material needed for furniture and wooden flooring the American construction industry demands.
The White House is interested in addressing other issues with the Chinese market. The U.S. needs the Chinese to adopt policies for fair trade and free markets. Only after these issues are addressed, there will be some chance to get the American Chinese trade relationships back into gear.
The question is, what is the resultant effect of the changes the construction industry is seeing? The statistics show lower business than ever. The homebuilding industry has an average of a 3% drop in the market since last year. This September, the industry is predicting a new low.
Maybe the MAGA objective needs to find itself a different route. Closing doors to imports by making them out of reach for smaller industries is not the way to go. It is hurting America’s own citizens. The ones with smaller businesses and the ones with smaller home plans are taking the brunt of it all. The bigger companies are flourishing more than ever.
Sustainable growth needs to include the lower economic sectors as well. For a wholesome development, increasing taxes on imports without equipping domestic industries is doing more harm than good.