The Impact of Tariffs on Construction

In this episode, Matt Brennan discusses the implications of potential tariffs on the construction industry, particularly focusing on a proposed 25% tariff on imports from Canada and Mexico. He explains what tariffs are, their impact on construction materials like steel and softwood lumber, and how these changes could affect project costs and planning. Through real-world examples, he illustrates the challenges faced by contractors and architects in navigating these economic changes, emphasizing the importance of trade and collaboration between Canada and the US. The conversation concludes with reflections on the future of the construction industry amidst these uncertainties.

Takeaways

• Tariffs are taxes on imported goods that can raise costs.
• A proposed 25% tariff could significantly impact construction materials.
• Steel and softwood lumber are heavily imported from Canada.
• The construction industry must adapt to rising material costs.
• Contractors may face challenges in pricing and project planning.
• Real-world examples highlight the complexities of tariff impacts.
• Navigating contracts during tariff changes can be tricky.
• Trade relations between Canada and the US are crucial for construction.
• Future economic conditions remain uncertain due to tariffs.
• Collaboration and communication are key in the construction industry. 

Sound Bites
"A tariff is a tax on all imported goods."
"Who pays the cost?"
"It's just not a fun scenario."
"This could be another point of breaking."

Chapters
00:00 Introduction to Tariffs and Construction
02:59 Understanding Tariffs and Their Impact
06:10 Effects on Construction Projects
08:57 Real-World Examples of Tariff Impacts
12:10 Navigating Contractual Challenges
15:06 Future Implications and Conclusion

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Transcript

0:00

Tariffs in the news. What can we expect when it comes to the construction industry? Let's get into it. Welcome to What the RFI. I'm Matt Brannon, and this is the podcast all about CA from the architects, project coordinators perspective when it comes to CA. So today is all about tariffs. As you've been hearing the headlines, Donald Trump is wanting to oppose a 25 % tariff on all imports from Canada and Mexico. So big news, it's hitting the headlines. Every day the new subject comes up, pops up on my Apple News feed and it's just escalating. It sounds like it's getting better, but we do not know. So today I want to go through what a tariff means when it comes to the construction side of things. And I've been, we've been through this already when Donald Trump was president, you know, four years ago and with the impacts that we saw from that. And then they were reversed with Biden to some degree and things cooled down, but it sounds like it's just gonna get worse. So let's get into it. First of all, what is a tariff? Let's just clear that right away. So a tariff is a tax on all imported goods paid by the person or company that imported them. So many importers pass these costs down to the consumers by charging higher prices or maybe they eat the costs and we'll get into that. While tariffs... are collected by the government that oppose, they aren't the ones that are paying to it, right? And they're not the ones that are paid by the government to another. So it makes it a bit of a tricky scenario with that. And again, let's just kind of like step back here and look at tariffs in general and how much and what does Canada import into the US? So right away, we know energy products, right? A lot of clean energy, especially more on the Ontario side down. to Minneapolis, all those kind of general states, a lot of clean energy into that. Being, you I'm from British Columbia and the next province over is Alberta, it's known for its oil and gas. Absolutely. And back in July, 4.3 million barrels per day were being imported into the US. It gives you kind of just an idea of numbers there. Overall, 598 billion dollars was imported just on that sector alone. That's huge numbers in respect to that. So when we talk about 25 % tariff, that's $150 million in tariffs alone. So this is where we're going to see kind of the challenges. Other things include motor vehicle parts, electronic equipment. But let's get into the construction sites. What is really impacted? Well, right away, In Canada, we've got a lot of natural resources. So one of them being the steel and a lot of metal ore is brought from Canada, imported into the US. And then with your multi factories that are refining it into the steel, and then basically taking that and then back re-importing and basically the finished product, basically build and construct our buildings. So that's kind of one element that does play into this realm of how is it going to affect the construction industry. just kind of keeping that in mind, you know, that's just a huge element on its own. Another big one is soft lumber. We've got a lot of lumber here, right? Living, for me, living in beautiful British Columbia, we have just the forest all around. I was out for the weekend at Chillo Lake, four by four in beautiful lake. was an old We have so many forest service roads around here. It's its own maze, its own network. And even though they're still logging, there's still plenty of yield and they're still replanting and kind of doing that growth scenario. So a lot of that is being imported and over 8 billion of softwood lumber alone was imported last year. It's a great material to work with with soft lumber as everyone knows it's easy to frame, it goes up, it can last forever long as it's protected in that response. And you know, if we're importing 8 billion, well again, a 25 % upcharge, that's over 2 billion right there. And you know, hey, this is not no Black Friday sale here. not a saving 25%, it's an additional 25%. So where does the numbers come out? And that kind of leads to the next topic is Who pays the cost? And it's a tricky one because if you're a business, you don't want to take the 25 % hit. You're already taking a hit on a number of other things with rising costs, inflation, all these extra things, higher wage costs, minimum wage, competitive salaries, all this plays a role. So do you bear the cost on the end owner? Well, maybe they don't want to buy it. Maybe they don't want it. It becomes this negotiating thing. But again, it's supply and demand at its finest because they want the material. right? It's great material. They need the material, right? We were still continuing to grow. You know, housing still booming and 25 is looking like a very promising year. who pays for the cost? And that's that is the like I said, that is the really the tricky question of where, where does that needle line does is a 5050 split? We don't know. And the thing is, what is Canada doing right now? Well, I again, Just reading through the headlines, I don't know behind the curtains information. I'm not no financial advisor, of course, but we are seeing that Canada is hopefully not just sitting back and we're seeing that they're trying to be proactive than reactive. And basically, our Prime Minister, Justin Trudeau, is meeting down with Donald Trump. This morning I was reading an article about New Promise to deliver additional drones and helicopters and extra safeguards to protect the borders, because that's kind of what's really triggered this. and requests for extra tariffs. So I don't have no crystal ball in this application. I hope it all works out really well. We've been, you know, again, we've been kind of been beaten down enough over the last kind of four years, and it's time to go through a new rebuilding phase in respect to that. But let's get into this. What does this mean to your projects that are currently on the go that are being planned coming up? Let's dive into that. So first off, let's talk about pretender. You know, that's great. We haven't tendered the job. You've designed the building. You've written up the specs. You're about to hit issue for tender. Now, of course, this news has come about. So what does it mean? Let's talk about steel. If your building's designed for steel construction, this is where it's probably going to get hit the most. And you're going to see, you know, inflation and tariffs being applied to all the manufacturing, mechanical equipment, right? Because again, all the metals that go into it, you're going to find this go into even like electrical opponents, junction boxes, like everything. The reality when it comes to Canada is we have a lot of material, but we don't have a lot of factories. Some stuff is, but the reality is it's all done in the US, especially when it comes to steel. And we're going to get into a story where I found, we had challenges with steel tariffs and doing a lot of homework is steel. isn't really produced here in Canada. Apparently there's only two factories from one of the GCs I was working close with. That's what he could find as research. It doesn't sound right, but you know, again, I won't hold him to that and hold myself to it. But the reality is, it's in the US, that's where you have all your steel factories, your manufacturer. You've got the volume there compared to us here, right? It's just, that's just the reality of it. And so that's where we basically export. the steel, ore material directly to you as the raw material, you form and fab it to basically give it to what it needs. It gets shipped back to Canada and then we cut and then basically fabricate it from there. And then that's where it goes into our buildings. And that's where the transition becomes really tricky. So in saying that, we're gonna get some very interesting prices, right? So basically if we tender out a job today, there's gonna be a, it could be a variety of prices. Some G skis could basically all come across the board and taking the fact that we're adding 25 % to steel and that's just how they're gonna play the safeguard. Maybe some will take the risk to basically win the job and not take the, they'll assume that it is, but again, they take the huge risk of not including that 25%. I don't know where it's gonna go. If you were to attend a job right now, it would be really dicey. A lot of people would wanna wait till, till January to kind of see where. where things go, right? Where, you what's the first actions in the office? Are they gonna hold, you know, is Donald Trump going to sign off and applying that 25 % tariff or is this just all kind of, we're up and panicking right now, but again, we gotta treat this really serious. So, you know, when it comes to our projects, going forward, maybe we want to start thinking about different ways of design. Maybe you don't want to design these around steel because we have this tariff thing. Maybe we go right back to our natural resource, which is softwood lumber. and we do basically mass timber builds. Maybe that makes sense. It is a very expensive process and you do have limitations to it, but maybe that's the way to go. It depends if this is an extra 25%. These are all things that you got to take into account when you're at that early stage and go how we want to go. Basically work with your quantity surveyor to budget these out. So like I said, if you were about to tender something right now and tender coming in, like I said, prices are going to be high, they're all going to be over the place. we'll have to see. I'm very interested to kind of see where it goes over this next little bit. But too late, you've already tendered and you have closed a bit before all this news hit the mainstream. What does it mean? Right? So you've got a stiff sum, CCDC2, locked in contract here in Canada, and the same thing for the US. Because again, you've got these import fees again. We're both in the same boat here. It doesn't matter if it's... where basically there were two different boats but within the same ocean. So it's the reality we're gonna all feel the rock from this in either way. So this becomes really tricky. I, and again, kind of rewinding, going back in the time here, I was working on a brand new middle school project in Coquitlam, BC where we had this scenario. So the story is basically the building was tender, closed. being built, foundations were going, and there was a huge amount of earthworks that had to be done, and concrete piles and stone piles they called it. It just wasn't a great groundwork. So that took a lot of time just to get the earthworks and the base foundations completed. So once steel rolled in, Donald Trump came into power and on his first term, and at that point imposed the tariffs. What did it mean? Again, the kind of almost history is repeating itself today. back to when it was there. So these guys were already locked into his contract. And we did have the steel sub come to us requesting an extra. And when we basically pushed back and politely said, what extras are we looking at? And they couldn't give us any firm numbers and it was very frustrating. And they knew that they were gonna get extra costs even though they didn't have the proof to do it, which again, was it a tariff or not? we have we saw in other jobs too. we knew it was coming and it was legit. So they tried to claim the extra but we weren't allowing it because we wanted to see the proof like I said. But it came down and it was kind of a neat idea is that he wanted to buy the steel in advance, which we were totally okay with. But for a progress claim, basically end of the month, basically claim and basically pay the trade. is that material has to be on site. If typically, like I said, we find when we do the progress claims, if a contractor or a sub trade has purchased, you know, all the material for millwork and they've built the millwork, if it's not on site, we're not going to allow it. We need to see it on site. We can't take word of mouth. We can't take photos that are pictures of another job. You can't do that. So in this case, what the agreement was is that this contractor or the sub trade would buy all the steel before these tariffs took into effect. He bought it, he put it into a warehouse and then he got it notarized saying that this material is here, it's been all accounted for, here's records, documentations and for some reason if that building went up in flames or had, you know, someone caught wind that there was a huge amount of steel in there and they stole it all, it was insured, it was covered. And even if they called bankrupt or anything like that, it was notarized, it was locked in. That the money wasn't lost from the school district in this case. So was a very tricky way of doing it, but it was something that the sub-trade took on himself, bear the cost, because he understood that he was locked into this price and he didn't want to pay this extra steel tariffs. So that all took place. And then it was kind of funny, he came back afterwards once the tariffs were really real and they were coming in there. And he tried to claim an extra, which was really odd in our case because we said, well, look, you already bought it and you didn't buy all the materials. You could only get so much of it. That was kind of the story. And unfortunately, he couldn't give us real documentation. us a bunch of handwritten up documents with receipts. And it was just an ugly mess. And it was lots of, unfortunately, meetings back and forth with the owner, with the contractor, with the sub trade, us as the architects. us with our structural steel engineers as well. And unfortunately the sub trade never did get any of that because again, he couldn't provide actual real concrete backup documentation. And, and that was it. But again, we know that other jobs are going in, they were facing the steel tariff scenarios and just not a, just not a fun way of doing business at the end of the day. You never want to see someone lock into a price. And then when they come to the job, It's just not there, right? That's really frustrating. It's very unfortunate. We want to all win. We're all a team. We want to all be celebrating that we've completed this project in the school. So keep that in mind. Okay. So that's kind of where that one personal experience that I saw with this and again, along with the other jobs with it, it's not a fun scenario because like I said, who bears on the cost of this? And that kind of goes into our summary and wrapping this thing up is You know, it's not only going to Canada, but the rest of the world is going to be watching. Because the moment of this is go ahead, go ahead. Maybe this 25 % does get approved, move forward. And Canada is on the hook, the US is on the hook. we're playing this game of who's bearing the cost with it. What's that going to do? Is it going to slow trade down? Are we not going to import as much? There's going to be definitely some because we need it. Some people are willing to pay because that's just the way it is. Costs are to be bared on to the end of the day to the consumer, right? or the company that's doing it, but I doubt that's gonna happen. But if this goes ahead, what does it mean for the rest of the world for imports? And I don't know, this is where my lack of knowledge isn't there. A little bit of knowledge is dangerous in that sense. So do your own due diligence, of course, in respect to that. I'd love to connect with you on LinkedIn and chime in and send me your overall comments. This is a really tricky one. And again, No one really has the clear answer. We won't know until the day it actually happens. And maybe at the end of this, is maybe it's just, you know, another thing to basically up, you know, the borders or anything like that to ensure that, you know, the request from, you know, Donald Trump's kind of message here that it is cheap. So maybe it will be nothing. And in the end, maybe it might be nothing, which would be wonderful. So we can have a thriving 2025 year. We'll have to see. Okay. But we have to assume the impact is that the writing is on the wall, but like I said, we won't know until we get officially hit with it. So that's the you know, the unknown line factor with this. The reality is though, we do know is both Canada and the US are just continuing to grow and we do need to work together. You need materials, you know. You need us, we need you, vice versa in that respect, right? That's trade in a sense. If you've ever played the game of Settlers of Catan, it's a kind of a neat game where you get resources, but there's certain points where you're rolling your dice and you can't get certain resources because you just didn't build there at the beginning of the game, and that's where you impose a trade on people. Well, if you took trade out of the game, it'd be really boring because you would be stuck, you wouldn't be able to do anything, and that's what trade is, right? We've done trade from the... early days I'll trade, know, even going back to his kid, I'll trade my lunch for your lunch, right? Trade is important. what things keep moving. It's in the end, it's a win-win. And this is a scary time to see what happens. So I don't know. I hope it all works out really, really well that we can find the medium ground that, you know, if we don't see that, because again, it's not just the industry's eyelesses, you know, in the dairies, you name it, there's lots of things that going to be impacted by it. But If it does go through, will this push us past the breaking point? We've kind of had, you know, we've had an economic crisis. So everything in this sense of those last four years, again, with COVID and everything, even the whole, you know, Russian-Ukraine war and that kind of stuff, took another hit with everything, with the stock markets and kind of looking at history repeating itself, you know, again, kind of after... World War one there in the stock market crash and then basically, you know, they eventually were on a rebuilding phase We had the 2008 crisis and again the massive crash in the rebuilding phrase and I think looking at the charts if history is repeating itself 25 could be a good year. Will this put another damper into the whole thing? I don't know But I hope it I hope we exceed it and it goes really well. I hope things calm down we can continue to build and 25 can be an amazing year. I've been meeting with architects all throughout North America. The amount of projects that are coming down the pipeline, government funded or just private funded, it sounds like it's gonna be a great year. So this is just another bump in the road. Hopefully we can get past to it in that sense. But the reality is we're not seeing home prices decrease in any way. Again, living in beautiful British Columbia. you know, almost everything started at a million dollars, right? It is unbelievable where it is. And this just could be another point of breaking, you know, where it comes to the economy. So we'll see. Like I said, your guess is good as mine. Feel free to shoot me a message on LinkedIn. I'd love to hear your honest take on it. And honestly, we can all predict what we want, but we won't know until, until January when things come into effect. So. So that's wrapping up this episode. Thanks for joining. Thanks for listening to today. We've been kind of talking about the financial size, but it is a very hot topic. It's a very important topic and it will impact the construction industry it is. anyways, till next time, architects keep designing and contractors keep making those blueprints a reality. We'll check you on the next one.