Bay Area construction already feeling the impact of Chinese tariffs

- Chinese leaders say their economy is starting to feel the impact of the growing trade war with the United States. But the new problems and challenges five-thousand miles away from the Bay Area are being felt here at home. The familiar sight of housing construction sites growing from ground to sky could soon be impacted by a battle between capitols and countries.

“The construction industry in general, and particularly the housing industry, which is one of our greatest needs in the Bay Area, the blows just keep coming,” said Prof. Kelly Snider of San Jose State University’s Department of Urban Studies and Planning.

She says the latest hit comes from what could be considered “unfriendly fire.” In the Spring, President Donald Trump, in reaction to trade imbalances with China, Canada, and other countries, announced tariffs on multiple raw materials. Tariffs essentially act as a tax on these goods, driving up the cost by as much as 25% in some cases. That increase is typically passed on. Many items, such as lumber and steel are used in the construction industry to build homes desperately needed in the  Bay Area. In a region facing labor shortages, a lack of space, and growing regulations, permits for new homes and apartments has dropped 10 percent in San Jose since the imposition of  tariffs.

“It’s precarious enough. And any little change is going to lead to a lot of downstream negative effects,” said Snider. “We’ve been able to mitigate some of that by pre-purchasing some of the materials and working with our sub-contractors,” added David Gibbons, a vice president with Swenson Builders, which is based in San Jose.

Swenson’s executives are already eyeing a 30 acre development downtown, near the SAP Center. But this project, and others still in the planning phase are impacted by higher costs associated with current tariffs. Gibbons and others say adding to the cost of raw materials through tariffs can have a chilling effect on construction.

“At some point there’s going to be a limit as to how much our owners and developers are going to be able to raise prices. And at that point, it’s going to slow the market down considerably. So we’re very concerned about that in the long run,” said Gibbons.

Experts say because of the cyclical nature of the construction industry, and the severity of the housing crisis here in the Bay Area, it could take several years before supply catches up with demand. And that’s if the current tariffs that are in place, don’t do too much damage.
 

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