- President Trump’s 25% tariffs on Mexico and Canada went into effect on March 4, sparking concerns for commercial real estate.
- The tariffs will increase construction costs, particularly for materials like steel, aluminum, and glass, which are heavily sourced from Mexico, Canada, and China.
- Uncertainty over the tariffs has already caused project delays, as developers, contractors, and lenders struggle with unpredictable material costs.
- While tariffs may boost US industrial real estate due to onshoring, residential and commercial construction projects are likely to face higher costs and slower timelines.
- Mexico and Canada have both promised retaliatory tariffs, potentially escalating the trade tensions and further affecting supply chains in the CRE sector.
Starting Tuesday, March 4, 25% tariffs on goods imported from Mexico and Canada officially took effect, introducing a wave of uncertainty into the CRE sector, per Bisnow.
The Stage is Set
The decision, announced by President Trump on Monday, triggered concerns that North American trade relationships could be further strained, impacting construction costs and global supply chains.
“These tariffs are set. They go into effect tomorrow,” Trump said in a Monday address from the Oval Office, ruling out any last-minute deal to prevent the penalties.
The tariffs come amid ongoing tensions over border security and fentanyl trafficking, which Trump says the new measures are designed to combat. Canada, in response, has announced 25% tariffs on $100B worth of US goods, setting the stage for a potential trade war.
Cautious Stance
For CRE, the new tariffs come at a time of great uncertainty. “Uncertainty causes delay, and ultimately, delay kills deals,” said Julie Workman, a real estate attorney with Saul Ewing. Workman noted the prospect of tariffs has already halted or slowed down several projects.
Ultimately, the tariffs could have a dual effect on CRE. On one hand, they could boost the industrial sector as manufacturers bring operations back to the US to mitigate import costs. On the other hand, they could spike construction costs and slow down development.
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Higher Construction Costs
Materials like steel, aluminum, and glass, critical for both residential and commercial projects, are all sourced from Mexico, Canada, and China—countries directly impacted by the tariffs. Late last year, construction firms began stockpiling materials in anticipation, which contributed to a price surge.
According to the National Association of Home Builders, some building materials have seen their prices soar. Steel, which is essential for both construction and manufacturing, is now subject to 25% tariffs, which could directly impact both housing and commercial development.
“Lenders will need to consider the possible increase in costs to projects they are financing given the impact of tariffs on materials used in such construction,” said Daniel Diaz Leyva, chair of the real estate practice at Day Pitney, a law firm based in Florida.
Supply Chain Snarls
Mexico and Canada are both major suppliers of key building materials. Mexico sends cement, steel, concrete, roofing materials, and windows to the US, while Canada provides lumber, aggregates, steel, and asphalt.
China, which has already been hit with its own set of tariffs, remains the world’s largest supplier of construction materials like steel and glass. The imposition of these tariffs will further squeeze supply chains already under pressure due to global post-pandemic disruptions.
The scale of the impact will depend on how companies respond. Some suppliers may try to absorb the additional costs, while others might pass them along to consumers. In either case, these tariffs will raise prices and slow down the flow of materials to the US market, which will impact all of CRE.
Long-Term Impacts
Economists have warned that Trump’s new tariffs could stoke inflation, raising the cost of consumer goods and eroding purchasing power. Warren Buffett, CEO of Berkshire Hathaway, called tariffs an “act of war,” suggesting that they could hurt US consumers in the long run.
Business groups have also expressed concern. Jessica Walker, president of the Manhattan Chamber of Commerce, believes the tariffs will be awful for tourism. “Canada bought $23 billion worth of goods and services from New York in 2023. One million Canadians traveled here last year,” she explained.
Escalating Trade War
Canada, in particular, has strongly opposed the new tariffs out of the White House. Prime Minister Justin Trudeau attempted to mitigate the situation by investing heavily in border security and law enforcement to curb the flow of illicit substances.
Meanwhile, Mexican President Claudia Sheinbaum has vowed to retaliate if the tariffs go into effect. Sheinbaum has already made moves to bolster Mexico’s position by sending additional troops to the border to combat illegal trafficking.
