How Will Steel, Aluminum Tariffs Impact Construction Labor?
WASHINGTON, D.C. — With virtually all construction costs tied to either materials or labor, President Donald Trump’s tariffs on two key building supplies could further exacerbate the construction industry’s longtime worker shortage, according to industry experts.
Trump’s tariffs on imported construction materials — 25 percent for steel and 10 percent for aluminum — have enabled American steel and aluminum producers to raise prices to new benchmark levels.
But there’s more at stake than short-term increases in materials costs. By forcing construction firms to allocate more operating income toward materials, the tariffs are likely to prevent firms from offering higher wages to attract more labor.
Immediate labor impact
A recent study from Trade Partnership Worldwide LLC, a Washington, D.C.-based economic consulting firm, estimates that the tariffs will generate an overall net loss of 146,000 jobs. The report also notes that across all impacted sectors there will be five jobs lost for every new job gained.
The automobile, fabricated metals and logistics and distribution industries would be among the sectors hit. According to the study, job losses in these three fields alone would exceed 50,000 positions.
The American construction industry is poised to lose about 28,000 jobs as a result of the tariffs. That is roughly the same number of new jobs that will be created as a result of the tariffs at American firms that produce steel and iron.
The setbacks are coming at a time in which construction labor was making slight gains. Data from the Bureau of Labor Statistics (BLS) shows that since hitting a 10-year low for employment in January 2011, the industry has experienced positive net job gains in 78 of the last 87 months. The construction labor pool has grown by nearly 2 million workers since that low point, with 282,000 jobs added year-to-date through June.
While the labor shortage is far from rectified, a slowdown in building normally grants some slight relief. According to Dodge Data & Analytics, the number of new construction projects in the United States declined by 7 percent from 2016 to 2017 and is expected to show a year-over-year decrease in 2018 as well.
But despite these gains in labor and slowdown in development, overall construction spending continues to rise. The Association of General Contractors (AGC) recently found that residential and commercial construction spending in May exceeded $1.3 trillion, the highest monthly total since 2010. This is primarily due to pre-tariff increases in materials costs and sustained demand for new projects in a healthy economic cycle.
It will take some time for the impacts of the tariffs to show up on the labor side of the equation. According to Jason Cooper, president of general contracting firm Arch-Con Corp., construction labor will feel the strain most strongly if the tariffs cause overall costs to escalate to the point that entire projects are canceled or postponed.
Cooper also notes that it is possible for the tariffs to have a positive effect on the labor situation. “If other industries, such as manufacturing, reduce their labor force in response to the tariffs, some of those laid-off workers could enter the construction industry,” he says.
Arch-Con, which has offices in Dallas and Houston, says that at this stage, effects of the tariffs have been confined to the materials side. That is to say, only the increased cost of materials is currently being passed on to customers. However, that could change, depending on whether materials prices rise even further due to unforeseen supply concerns.
Steel and aluminum both figure heavily into construction budgets. Even with projects that feature concrete columns/slabs or wooden studs in the walls, steel rebar is still required to reinforce these structures.
Steel figures into a variety of other structural and finishing components, including sprinkler systems and frames to support the base and roof of a building, and is a preferred building material because of its durability.
DRB Development Solutions, an Atlanta-based consulting firm for general contractors, recently released a report that notes that the construction industry consumes approximately 40 percent of the steel in circulation, followed by the automobile industry at about 25 percent.
According to DRB, aluminum is the second most widely used metal in modern construction. The metal’s usage has grown over time, primarily because it is light, malleable and resistant to corrosion. Aluminum is commonly used in features such as window frames, roofing, electrical fixtures and decorative elements.
The initial shock of price increases in these materials should manifest itself in one of two ways. Materials suppliers will stockpile product in advance of the tariffs taking effect and sell them at post-tariff prices, or they will quote higher prices in advance of the tariffs and selectively adjust prices based on orders they receive. In the latter case, buying in bulk can sometimes lead to a discounted price.
“My experience has been that about 40 to 50 percent of the cost increase will be accepted by the construction industry and passed on to clients,” says Donald Boyken, CEO of DRB Development Solutions. “New contracts will be affected, but most existing contracts don’t allow for such increases to be passed along to the general contractor and the client.”
— Taylor Williams