The Terrible Truth About Tariffs

Mark Twain is supposed to have said, “Everybody talks about the weather but nobody does anything about it.” The same could be said about tariffs and our current trade war. And that’s largely because no one cares about them … until they affect one’s own pocket. And they are already affecting some San Fernando Valley pockets. Today, America is divided into two camps regarding tariffs. Pro-Trump camp members say, “The president is protecting our industries against the unfair trade practices of other countries.” The anti-Trump camp members say, “No good will come of starting a trade war; we alienate our allies and cause goods at home to increase in cost.” In July, the administration imposed a 25 percent tariff on $34 billion worth of Chinese imports. Accusing the United States of being a trade bully, China has retaliated by imposing tariffs on American goods of equal value. The United States plans tariffs on an additional $16 billion of Chinese goods; and that’s just China. The trade relationship between our two nations is worth about $650 billion each year, and represents the largest trading relationship between any two countries in the world. The United States is the world’s largest steel importer; in 2017, that amounted to 35 million metric tons, or 33 percent of the total steel used in the country. The biggest impact will be on structural steel used in steel-framed buildings. The National Association of Homebuilders is just one of several trade organizations that has come out against the tariffs because higher steel costs will raise construction costs for its members, which could eventually could be passed on to homebuyers.  The president’s tariffs on steel and aluminum imports have, according to the Horton Group, a large insurance, employee benefits and risk advisory firm, “rattled financial markets and sparked concerns about global trade. The construction industry is bracing for the effects of the tariffs, as it relies heavily on steel and aluminum for its projects.”  Last year, the president hit five Canadian lumber companies with tariffs between 3 and 24 percent. Since then, according to Bloomberg data, lumber prices have jumped 31 percent. The New York Times in an Aug. 12 article headlined “New Tariffs Could Make Apartments More Expensive,” noted “The Trump administration’s new tariffs on imported metals are rattling the construction industry and sending ripples of anxiety through related concerns.” The article outlined how the tariffs will eventually raise costs throughout the real estate and housing markets. The American Institute of Architects also opposes the tariffs, saying that “any move that increases building costs will jeopardize domestic design and the construction industry, which is responsible for billions in U.S. Gross Domestic Product, economic growth and job creation.” Since the end of World War II, the San Fernando Valley has experienced one of the greatest building booms of commercial, industrial and residential real estate of any region of the country. And while the Valley is largely built out, a very significant segment of our Valley economy is based on real estate and construction. The pockets of many San Fernando Valley businesses linked to real estate, construction, remodeling and related industries are getting picked, and those costs will, most likely, be passed along to consumers. Louis Krokover is president of NewDay Development, headquartered in Sherman Oaks. He is a third-generation contractor and builder, with his family’s Los Angeles-area construction business dating back to 1912. His family’s first Valley project was completed in 1960. NewDay Development was named the Remodeler of the Month for August by the National Association of Home Builders. According to Krokover, “There is no doubt that increasing the costs of steel, aluminum, lumber and other products that are critical to new construction and remodeling will both add to the costs of all types of construction and will slow down building, just when our Valley is facing a housing shortage. In fact, these tariffs couldn’t come at a worse time for the Valley construction industry as well as those seeking to purchase or remodel a home or commercial building.” Krokover says he has spoken to a number of Valley-based professionals in development and construction – including architects, designers, real estate professionals – as well as builders of warehouses, homes, office and industrial developments. They all cite challenges in bidding new projects or remodels, concerns over contracts that have been signed keeping them to set costs, and other difficulties that challenge running their businesses at a profit. According to Building Solutions magazine, “the biggest impact is the uncertainty this generates in the industry; with price volatility comes increased risk.” Threatening, imposing and sometimes exempting tariffs on other nations may make good politics, but it certainly doesn’t make good business. One thing is clear: Valley business hates uncertainty, and what the administration’s trade policies are resulting in so far is … uncertainty. Martin M. Cooper is a marketing professional whose Encino-based firm, Cooper Communications Inc., has represented real estate and development firms since 1982.