Are potential tariffs priced into construction costs in advance? Using steel commodity prices as a case study

Are potential tariffs already priced into material costs?

July 31, 2019
  • Are potential tariffs already priced into material costs? This is one of the most common questions about tariffs from people in the construction and real estate industries. To answer the question, we analyzed three major events related to tariffs that impacted the U.S. steel market over the past three years.  The first event was the election of President Trump in November 2016. While not specific to the steel market, this signaled a potential turn to protectionism in markets overall. The election was followed by a 9.5 percent spike in steel prices. The second event was in April 2017, when the U.S. Department of Commerce announced an investigation into whether tariffs on steel were necessary on the basis of protecting national security. Prices following the investigation increased by 4.2 percent, but then mostly held constant over the next 11 months. The third event occurred in March 2018, when the 25 percent tariffs were formally announced and put in place. This led to a 14.3 percent price increase, which roughly equals the increases following the other two events combined. 
  • The conclusion is that potential tariffs can impact prices, but to a lesser degree than the impact of the actual tariff. Businesses will react to potential tariffs by stockpiling, which can drive up prices. However, tariff impacts are not fully felt until the tariffs are in place. It is therefore generally not safe to assume that tariffs which have been threatened or discussed, but not put in place, have been fully accounted for in the current market price.

Source: JLL Research, Bureau of Labor Statistics

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