A flurry of announcements related to tariffs have come down the pike over the last two months, with many expected to take effect on April 2, along with the possibility of further policy updates. In this post, we’ll talk about how tariffs will affect real estate, the property management industry, and the broader economy. But first, we’ll catch you up on how tariffs work.
Tariffs 101
How Do Tariffs Work?
Tariffs are generally imposed as a percentage of the price that an importer pays a foreign seller. They’re collected by Customs & Border Protection at ports of entry in the United States and are paid to the U.S. Treasury, as NBC explains.
There’s a common misconception that tariffs are paid for by foreign countries. In fact, tariffs are more like a tax paid by American companies that import goods. Often, they’ll then raise their prices to compensate for the increased expense (and this can prompt competitors to raise their prices in tandem, leading to inflation).
That’s not to say that tariffs don’t have negative effects on foreign countries. They do make their products more expensive to purchase, and therefore less competitive on the market. Tariffs are most often enacted to punish other countries for trade practices that are perceived as unfair—for example, unleashing a wave of products onto the global market at excessively low prices to gain market share.
The threat of tariffs can be used to persuade other countries to act in a way that’s advantageous to the U.S., but it’s important to remember that there’s another side of the coin, too: Tariffs often result in retaliation, otherwise known as a trade war.
What is a Trade War?
A trade war is an economic conflict between two nations that arises when one country restricts another country’s imports in response to their trade practices. According to Investopedia, trade wars result from protectionist policies, which are government actions designed to limit international trade in order to protect domestic businesses from foreign competition. Protectionism aims to balance out trade deficits, which occur when a country’s imports outpace its exports.
Advocates of trade wars say that they defend a country’s interests and give domestic companies a leg up. Detractors argue that trade wars ultimately damage consumers and local businesses and reduce a country’s economic growth.
A Brief History of U.S. Trade Policy
Prior to the creation of the federal income tax in 1913, tariffs were a major source of revenue for the U.S. government. After World War II, however, the United States emerged as a key advocate for global free trade. Over time, this stance evolved as the country experienced a decline in manufacturing jobs, largely attributed to unrestricted free trade and China’s growing influence on the global stage, according to NBC.
The North American Free Trade Agreement (NAFTA) of the 1990s integrated the economies of the United States, Mexico, and Canada by removing most tariffs on traded goods. This agreement was replaced by the United States-Mexico-Canada Agreement (USMCA) in 2020, a deal negotiated by President Trump that was partially built upon NAFTA, Investopedia explains.
Today, Canada and Mexico (as well as China) continue to represent the United States’ three top trading partners, with 78% of Mexican exports and 75% of Canadian exports destined for the U.S., according to Brookings. As a result of the NAFTA and USMCA policies, the supply networks of Canada, Mexico, and the U.S. are highly interconnected, with items frequently crossing their borders during the manufacturing process.
How Will Tariffs Affect Real Estate? The Latest Updates on the Trump Administration’s Policies
Tariffs on Canada & Mexico
Tariffs on Canada and Mexico were first put into place on February 1, but were then pushed back to March 4 in response to negotiations between the three countries, which are still ongoing. Currently, 25% tariffs are in place for Canadian and Mexican goods that are not covered under the existing United States-Mexico-Canada Agreement. Further updates are expected on April 2, according to the Wall Street Journal.
Canada has already retaliated with tariffs on many U.S. goods, while Mexico hasn’t yet announced its response.
The Specific Impact of Canadian & Mexican Tariffs on Building Materials
When it comes to materials needed to build and renovate housing, overall, about 7% of residential construction materials are imported from other countries, the National Association of Home Builders says. However, they explain, we import around a third of our softwood lumber because the U.S. can’t produce enough on its own to meet the demand. Of those goods that are imported, about three-quarters of wood products (for example, lumber used for framing) come from Canada, while three-quarters of gypsum and lime products (used for drywall) come from Mexico, according to the NAHB.
Tariffs on China
For goods from China, the Wall Street Journal reports that 20% tariffs have so far been put into place. The two 10% tariffs imposed on February 3 and March 3 are in addition to tariffs of 10 to 25% that President Trump imposed during his first term on items such as electronics. From China, we import a number of building components, including steel, aluminum, and home appliances, according to the National Association of Home Builders.
China has retaliated with tariffs on many American goods, as well as restrictions on exports to certain American companies.
Tariffs on Europe
On March 11, the Trump administration announced 25% tariffs on the European Union’s steel and aluminum products, according to Bankrate. The EU has responded with tariffs on American steel and aluminum, as well as home appliances and both plastic and wood products, among other items. Further tariffs on the EU could be announced on April 2.
Tariffs on Steel & Aluminum
On February 10, Trump proposed a 25% tariff on steel and aluminum imports, which went into effect on March 12. The U.S. imports 80% of its aluminum and 17% of its steel, the Financial Times says. These tariffs could give a boost to U.S. metal companies, but will primarily raise costs for the construction industry, experts believe.
President Trump reportedly plans to announce additional tariffs on steel and aluminum on April 2, according to Bankrate.
Tariffs on Copper & Lumber
The Wall Street Journal reports that the Trump administration plans to place an additional 25% tariff on copper and lumber products imported from other countries, though further details haven’t yet been announced.
Reciprocal Tariffs
An executive order on February 14 directed government agencies to figure out how to implement reciprocal tariffs, which would require American manufacturers and retailers to calculate individual tariffs on products from hundreds of different countries based on their existing trade policies, according to the Wall Street Journal. Specifics of the plan are expected to be announced on April 2, though WSJ also reports that it could take months for these tariffs to be enacted due to their complexity. WSJ also noted on March 24 that these tariffs could be narrower in scope than was originally stated.
How Will Tariffs Affect Real Estate? Their Impact on Housing Construction & Prices
The main way that tariffs will affect the real estate industry will be through increased costs for the materials that are used to build, maintain, and renovate homes and apartment properties.
The National Association of Homebuilders reports that building materials are already 34% more expensive than they were back in December 2020. Tariffs would further raise these prices, not only resulting in higher housing costs for homebuyers, renters, and rental property investors, but also preventing some new developments from penciling out, potentially worsening the housing shortage that’s ongoing in many parts of the U.S.
Propmodo also speculates that if we see another spike in rent prices due to rising housing costs, this could motivate localities to enact rent control policies or other tenant protections as they did in the wake of pandemic-era rent increases.
Lastly, higher costs for building materials will make it more expensive for property owners to maintain and renovate their homes, with access to materials like lumber, drywall, steel, aluminum, plastic pipes, and home appliances relying on imports from Canada, Mexico, and China. This would put further pressure on rental owners’ margins in a time when profitability is already a challenge, potentially motivating owners to raise rents, and putting the impetus on property managers to show the value they create through preventative property maintenance to keep costs at a minimum.
How Will Tariffs Affect the Economy?
The hope for tariff policies is that in the long run, they’ll encourage consumers to buy more domestic goods and businesses to move their operations to the U.S., potentially boosting local economies and creating jobs. For example, Reuters has reported that car companies like Honda and Volvo, as well as electronics companies like Samsung and LG, are mulling investments in the United States to lessen their exposure to tariffs. Apple has also committed to a $500B investment in the U.S., according to the BBC.
In the near term, however, many economists have concerns about how tariffs will impact consumer prices, economic growth, and interest rates. We’ll dig into each of these areas in this section.
The Impact of Tariffs on Inflation
An analysis by the Yale Budget Lab found that for the goods and services tracked by the PCE price index—the primary gauge that the Fed uses to measure inflation—the proposed reciprocal tariffs would result in a price increase of 1.7% in the short term, or up to 2.1% if other countries retaliate. For the average American household, this would result in a decrease in disposable income of approximately $2,721, or as much as $3,401 if other countries retaliate as expected.
The Impact of Tariffs on Economic Growth
The Yale Budget Lab also found that reciprocal tariffs would result in reduced GDP growth of 0.1 percentage points in 2026, or as much as 0.6 percentage points if other countries retaliate, resulting in a U.S. economy that’s smaller than it otherwise would have been in both the short and long term.
The Impact of Tariffs on Interest Rates
Tariffs would likely cause the Fed to hold interest rates higher for longer, according to the Wall Street Journal. Tariffs can impact how consumers and businesses perceive the likelihood of prices rising in the future. As Cleveland Fed president Beth Hammack explains, this factors into the Fed’s interest rate decisions, because “if people expect inflation to be higher, they will respond and react differently, in a way that will drive more inflation.”
For example, WSJ explains, landlords may raise rents in anticipation of increased costs. In response to elevated housing costs, in the broader economy, workers may negotiate for higher raises, further heating up economic conditions and keeping interest rates high.
The State of the Property Management Industry
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