There’s a good chance you noticed a steep rise in supplier costs for your business last year. It probably hasn’t budged since. Don’t worry. This isn’t a vast conspiracy aimed at taking you down. Instead, this price increase is the result of some significant government action: tariffs. The government has levied tariffs on incoming goods of many kinds, but several of them affect construction heavily. Here’s what you need to know.
Trade tensions in Canadian lumber stretch back into the 1980s. US-based lumber producers have long asserted that Canadian lumber operations have received government assistance, giving them an unfair advantage against US producers, though the Canadian government flatly denies this.1
Sabers were finally drawn in April of 2017, when the government announced a 20% tariff on much of the Canadian lumber imported into the US. These taxes have since increased, and Canadian lumber is now 60% more expensive than it was in 2016.2
A 25% tariff on Chinese wood doors went into effect in August of 2018 as a response to reports that China was dumping goods on the US market. Then, in September, an additional 10% tariff was placed on other building products, such as wood flooring, moulding, windows, and siding.3
Aluminum and steel tariffs are broader in scope. In March of 2018, the government ordered a 25% tariff on steel and a 10% tariff on aluminum from most countries.5 The EU, Canada, and Mexico were added to this policy in June.6 Australia and Argentina remain exempt. The construction industry accounts for more than 40% of the steel shipped into America, so this will have a noticeable effect on prices.2 Doors have already undergone a price increase.
These tariffs haven’t only increased prices directly. Market volatility has also been a strong factor, as suppliers attempt to avoid costs by sourcing products from other places.2 After the Canadian lumber penalties set in, for instance, many sought lumber from Russia2. Shake ups like this have a strong likelihood of driving up prices.
Some argue that these tariffs will invigorate American producers, but only over the long term, while resellers and customers will suffer in the short term.2 However, with many of these new taxes being used as pieces on a political chess board, it’s unknown how long they will remain in place.
So, what can you do about it? Be prepared to sell in bulk. With a more volatile market, many builders are working under a budget that covers all materials up front, requiring investors to share the risk7. Being prepared to fulfil large orders, and quickly, will keep you in step with this new model.
Another action step is to promote products that haven’t been affected by the tariffs. If lumber is high, why not push capped polymer decking as an alternative? The pricing conversation is at least a good way to discuss the benefits of other products.
Finally, stay informed. These tariffs could be removed at any time, so it’s important to keep your finger on the pulse of what’s happening in construction materials.
View more Dealer's Edge content here!
in | April 01, 2019