Consequences of the Trade War on Housing

Thursday, October 25, 2018

The American economy is a complicated beast. It doesn’t take an economist with a PhD to figure that out.

At the current moment, we are experiencing economic rifts that the average person isn’t used to, namely our current trade wars with China, Canada and possibly the EU.

We were paying too much for their goods, so now we are pushing back. That’s a good thing, but our policies should not spit in anyone’s face. The average citizen needs to understand the effects on the housing market, something that will affect us all.

Don’t let the rising costs sneak up on you.

They are a natural byproduct of the tariffs. Production costs on metal and lumber will become more expensive, and therefore housing construction will become more expensive too. Early estimates say the housing industry is going to be adding an additional $1 billion in costs once the trade war kicks into gear, with China especially.

This sounds scary on the surface, and it will certainly be a setback for those looking to make or find affordable housing.

But as an industry expert in mortgages and housing loans, believe me that these setbacks are necessary for the long game.

The fact of the matter is, if you look at metals especially, other entities like China and the EU have 10% tariffs on us and we have tariffs on them at a minimum of 2.5 %. There is a serious inequality there. At the end of the day, if we get into a staring match over these tariffs, our economy is significantly larger than everyone else’s.

We are the largest consumer — if we need to consume our own products we can do that. The impact to our GDP will be ⅙ of what it would be to China or the EU if we get into a tit-for-tat struggle and all have to fend for ourselves.

We should get even because we can afford to. We should level the playing field and gain equality on these tariffs.

My view on all of this stems from a big international meeting a few months ago. President Trump sat down with the Dutch Prime Minister, Mark Rutte, and made a comment that “If it worked out with the EU it would be positive. And if it didn’t work out, it would be positive.”

Rutte, on the other hand, claimed “No, it won’t be positive. We would have to work something out.”

The President is right in his desire for equity and the Prime Minister is right in saying that we have to work something out. The tariffs need to be a starting point to gain leverage, but these trade wars should not ruin our relationships. I won’t be specific, but we do not need to make things any uglier than they need to be when we get into standoffs.

Pettiness has no place in achieving goals and it has no place in any leadership position. It never helped when I was serving in the military, and it has never helped afterwards.

If we want these tariffs to pay off, we need to keep our eyes on the prize and not let frustration bubble through our communication.

The tariffs can speak for themselves.

Tensions have been high recently, and China’s been raising their tariffs in retaliation each time we do. The relationship there is generally more frigid, but I’d consider our EU and Canadian relationships to be more sensitive. We are friends with both of them.

In fact, the EU was created to be a counter balance to American economic power. They should be our largest and most secure trading partner, but we should not be paying more and we should not be trying to make enemies.

That dream home of yours might be just a little out of reach for a while. Our relationships with our trading partners will feel some strain.

Sometimes that has to happen to make progress.

In the end, we should still be able to come through all of this with a more level playing field and our relationships intact.