Who pays for tariffs? U.S. homebuyers likely to face higher prices

After deciding to place a 25-percent tariff on steel and aluminum imports to the United States earlier this week, the new U.S. administration is reportedly planning to introduce more complex "reciprocal tariffs."

Global investment banks and representatives of major industries have made it clear that tariff policies of the Trump administration will almost certainly result in higher prices for American consumers. 

The construction and housing industries could be hit particularly hard, as items from building supplies to household appliances depend on international trade. 

During the previous trade war in 2018, Whirlpool, an American home appliance maker, reported an unexpected cost surge of $350 million due to rising steel prices.

The National Association of Home Builders (NAHB) has warned that Trump's decision to impose tariffs on imported steel and aluminum runs counter to his policy goal of "making housing more affordable."

The NAHB said the policy is likely to raise costs and hinder development and re-construction. Ultimately, American consumers will pay for his tariffs in higher housing prices. The association has sought exemptions from tariffs on construction materials.

David Belman, a home builder in Wisconsin, estimated that tariff measures could increase the cost of building a typical home by as much as $29,000.

A large portion of the cost increase – up to $14,000 – would come from tariffs on Canada, Belman told The Business Times. He added that 80 percent of the lumber from his suppliers comes from Canada, which is the largest foreign supplier of lumber to the United States.

The country is already dealing with higher duties on shipments that started last summer.

In addition, imposing tariffs on Mexico could raise the cost of materials such as gypsum, which is used to make wallboard.

"The hardest part is that this is going to hurt first-time homebuyers," Belman said. "This will reduce housing affordability, which is obviously a concern for us as builders."

According to a forestry consultant from British Colombia, Canada, some Canadian lumber mills have told customers they will increase prices by 25 percent if Trump's tariff policy is implemented.

"This has left U.S. companies afraid to buy lumber," the consultant said, expressing hope that the policy can be temporarily lifted or that other distribution channels can be found.

At the World Economic Forum last month, Trump said the U.S. does not "need their lumber because we have our own forests."

Rajan Parajuli, an associate professor of forest economics and policy at North Carolina State University, said timber production in the southern U.S. and Pacific Northwest has been expanding in recent years, but timber harvesting is expensive and current supply chains in the U.S. are limited.

Meanwhile, shipments from Europe are too small to offset a loss in Canadian supplies, he said.

"I don't think we're going to be able to replace Canadian lumber going to the U.S. overnight, or even within a month or a year," he said.