Are Steel Tariffs Impacting Construction?

In March 2018,  The US imposed tariffs on imported steel and aluminum. The tariffs went into effect on March 23, 2018 stipulated that steel made in another country and shipped to the United States will be subject to a 25% tax. Imported aluminum will be hit with a 10% tax at the U.S. border.

 

When it comes to construction, virtually all costs are tied to either materials or labor. Now that the steel tariffs have been in place for almost seven months, the question everyone is asking is, “What does this mean to the cost of my construction project?” The answer is not as straightforward as the question.

 

U.S. Steel Import

The United States is the world’s largest importer of steel. We import approximately 35 million metric tons in 2017, which accounted for 33% of the total steel used in the country. Of the 35 million metric tons, nearly 60% was imported from five countries: Canada, Brazil, South Korea, Mexico and Russia.

 

Putting it into Context

Raw steel is used in the construction of a number of different building components including reinforcing steel in structural concrete, structural steel framing, and miscellaneous metal framing and supports. The tariff will have the largest impact on structural steel in steel framed buildings.

 

The prices for raw steel currently range between $700-800 per ton. A 25% tariff would result in an increase of $175-200 per ton. For context, a 100,000 square foot building built with a structural steel frame uses approximately 750 tons of steel using $15 lbs/sf structural steel. In most cases, the overall impact of a 25% increase in the price of raw steel is relatively minor- less than 1% of the overall building construction cost.

 

The Impact

The largest impact that the industry has felt so far is a level of uncertainty. As we learn how the industry will respond and adjust to the tariffs, price uncertainty will elevate the level of risk that contractors and subcontractors face when bidding on projects.

 

Contractors will be more vulnerable to price fluctuations between the time they submit a bid to when they are awarded the contract. The most feasible response to this risk is an increase in bid prices to cover the risk of fluctuation. Alternatively, we may start to see the addition of a clause to limit the amount of time a price can be held. We believe this situation will be resolved over the next several months as fabricators work to lock prices and the impacts of the tariffs are more widely understood.

 

Click here for more information on the impact of the tariffs.

Katie Craven
Katie Craven is Marketing, Communication and Brand Manager at Watchdog Real Estate Project Managers, a real-estate consulting firm that provides owner’s representation and project management services. More about Watchdog Real Estate Project Managers as well as additional blog posts can be found here.
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