NY City Lens - Steel Tariffs May Mean Costlier Construction Projects in NYC

Press - April 22, 2018

Construction site Builders worry that Trump's trade rules could drastically impact the market.

On March 8, President Donald Trump signed a 25 percent tariff on steel and 10 percent on aluminum—and even though the president has since made some exceptions about which countries’ products will be affected, construction firms across New York City are worried about the possible side effects.

The tariffs are aimed at foreign steel and aluminum imports, but some domestic distributors have said they will also raise prices—to compensate for what they say are years of being forced by competitive pressures to keep their prices unfairly low. The ripple effects of the president’s tariffs could also delay any projects currently in the works, as the industry tries to adjust to the new landscape.

So far construction projects have not been repriced, say industry insiders, but contractors and builders are reporting that the price of raw materials needed for those projects is already increasing as a result of the tariffs.

“Producers and service centers are apparently justifying the increases by claiming their prices have long been artificially depressed in order to compete with foreign steel,” said Gary Higbee, the director of industry development at the Steel Institute of New York.

The steel and aluminum tariffs come shortly after the New York City Council approved the rezoning of East Midtown. The area, which spreads from East 39th Street to East 57th Street and covers Third to Madison Avenues, is part of an initiative from the Bloomberg era to develop more high-rise buildings for corporations. Some construction executives fear that the rising prices could slow things down.

“Making potential and or current projects more expensive is a problem. In some cases, it could actually preclude a developer — public or private — from building a project. This does not, in my opinion, help our economy,” said Brad Meltzer, president of Plaza Construction, which is based out of New York City. “Any cost increase in a critical industry material can have an adverse effect on the market.”

New York City is a major steel market for construction. In 2017, the New York Building Foundation forecasted total construction costs for the city were $45.3 billion and anticipates $52.5 billion for 2018 and $50.1 billion for 2019. Although the total for 2017 was slightly down from 2016, these are still some of the highest numbers in the city’s construction history.

t’s unclear, however, just how dramatically the tariffs will affect the construction market. Some in the construction industry are not that worried. Professor Edward Re, a lecturer on construction management at Pratt Institute, for example, argues that the reaction is more emotional than real. For starters, he and others point out, Trump’s order excludes imports from Canada and Mexico – and has delayed implementation of tariffs for the European Union, Argentina, Brazil, South Korea, and Australia. So the impact may not be as widespread as originally feared.

Re emphasized that while many in the construction industry are closely watching the tariff battles, most know that it is unlikely that it will amount to a concrete policy any time soon. Although the tariffs are now in effect, he believes that it is just a momentary defect in foreign relations.

Despite concerns about rising steel prices, the $7.2 billion increase in construction costs from 2017 to 2018 is a boon for the industry, and it will potentially increase with the East Midtown rezoning.