Listen to this articleLast month, President Donald Trump announced he would institute new tariffs on goods from Canada, Mexico and China.
Canadian and Mexican leaders managed to negotiate a delay in the tariffs last month, but the import duties went into effect just after midnight on Tuesday. Tyler Schipper, an economics professor at the University of St. Thomas, spoke to Finance & Commerce about tariffs that day for this interview.
On Thursday, Trump postponed the 25% tariffs on many imports from Mexico and some imports from Canada for a month.
“If the goal of this policy [of imposing tariffs] is to make life more affordable for people, that doesn’t happen anywhere in the short run,” Schipper said during the interview, “and I think it’s highly debatable whether it happens in the long run either and especially with these tariffs being very untargeted.”
At the same time, Schipper recognizes why the policies are popular because some voters are feeling left behind in the economy.
“Even though I think they’re misguided and there are other ways to achieve similar industrial that is more cost-effective, [I recognize] that they were popular because of a failure of policy to make sure that people didn’t get left behind in a globalized world,” he said.
In this interview, Schipper talks about tariffs, timber and what people in the construction industry might need to expect if the exchange of tariffs between Canada, the U.S. and Mexico returns.
This interview has been edited for length and clarity.
Q: When we talk about construction materials and the tariffs on those kinds of materials — down the line, how do you see this affecting the cost of homes?
A: I want to be careful with this, in recognizing that there are certainly cost increases that will come from tariffs, because there is such a litany of different inputs into home building that come from abroad. But to also not overstate that, there’s a range of estimates out there, but I mean so the National Association of Home Builders estimates about 7% of the input costs into a typical home are from imported goods. And so that does make some of these things seem more marginal, but at the same time, we’re talking about an industry that has been seeing lots of other cost pressures, right, whether that’s in terms of labor or materials generally. It’s important that, as an economist, I don’t want to get on and overblow the effects of tariffs but also recognize that it’s additive in terms of industries that already have cost pressures.
I’m glad you brought up home prices, because I like interesting substitutions that happen when we have price changes and there’s all kinds of ways when you’re building a home, you can substitute things.
One of the most interesting facts that I found out there was that the average size of a newly built home in the U.S. has actually gradually decreased over the last few years, and you can see that as a response of home builders to increasing costs and hitting that price where consumers are willing to buy those homes. When we think about tariffs, increasing costs, it might not necessarily show up in the size of or in the cost of a typical home, but it might show up in terms of cost per square foot. Consumers see smaller homes out there, because that’s what they can get with their dollar and remember that when we talk generally about the economy, about the cost of tariffs, it might not just be in dollars and cents, but the fact you end up in a slightly smaller home,
Q: Do you see the response from the construction industry being different when it comes to having to build an apartment building versus building a single-family home or maybe even a duplex?
A: From conversations that I’ve had with people in multifamily housing, it is a rough world out there in that construction world right now because, especially in 2021, 2022, there was a lot of new inventory that went on the market. A lot of rental rates have decreased or grown very, very slowly, and there’s a lot of existing inventory still now, so that it’s a harder sell right now to build those kinds of buildings, especially when you think about having to refinance them after they take out their construction loans in the residential space.
Even though there’s been a lot of cost pressures, we have seen this place where new residential construction has been really important for providing inventory because people have been locked in their existing mortgages. I don’t want to make this sound like it’s not tough for residential builders, because if you look at the data on GDP growth and in residential construction, it’s been a little topsy turvy, but despite all the headwinds, there’s generally been positive employment growth in residential construction. It’s a tough world out there, but I do think multifamily housing tends to have a bit stronger headwind, and part of that might be the scale at which they’re building and how much ability they have to switch out different types of inputs.
Q: Have we ever seen tariff pricing impact home ownership previously in the country and/or throughout the world?
A: The most famous one would be during the Great Depression, we put tariffs on nearly everything, but I don’t know the composition of our trade flows at the time and the extent to which building materials were being produced domestically versus abroad.
I think these tariffs are unique in terms of how sweeping they are. All goods from us, from specific countries, and specifically our biggest trading partners, and at a moment where the goods are so integrated that we’re getting lots of our building materials from abroad.
Now on a more limited scope, an important example would be in 2018 we put tariffs on washing machines, and a couple of interesting things happened when we did that. One was that the price of washing machines went up. That pretty clearly happened. But also the price of dryers in the U.S. went up as well, and dryers weren’t subject to a tariff. It’s just typically, when people buy a washer, they also buy a dryer.
That allowed retailers to increase both prices. Sometimes, when people think about homebuilding, they might not be thinking about the value of those household appliances, but lots of them come from China, and that’s going to be another margin where homebuilders who might be installing those in some units, or in those multifamily units, where they are often including household appliances, those are going to be big additional costs that we do have really good empirical data that they will go up with tariffs.
RELATED:
Q&A: Analyzing Minneapolis’ housing slowdown with Zak Yudhishthu
Q&A: Jonathan Curry of ACEC/MN on bringing new talent to the industry
