Trump softens stance on reciprocal tariffs, but threat to homebuilders remains

While this plan would be logistically easier to implement — a concern among some administration officials — it would still have a massive effect on the global economy since it targets the U.S.’s largest trade partners.

And it would also be disruptive for homebuilders, who are already grappling with the tariff rollercoaster that’s ensnared critical construction materials.

The current status of Trump’s on-again, off-again tariffs with Mexico and Canada is a 25% tariff on goods that aren’t included in the United States-Mexico-Canada Agreement (USMCA), the replacement for the North American Free Trade Agreement that Trump implemented at the end of his first term.

Tariffs on China have reached 20% since Trump began his second term. He has also imposed a 25% tariff on all steel and aluminum imports, which he’s threatened to raise to 50%. Canadian lumber has also been the subject of threats, including at the White House on Monday.

As it stands, things will get worse for homebuilders on April 2, which Trump is calling “Liberation Day.” That’s the date that reciprocal tariffs are scheduled to take effect and the exemption on USMCA goods are set to expire.

The web of tariffs with alternating start and expiration dates will make it almost impossible for homebuilders to adjust. If or when they take effect, nothing will be left untouched.

Homebuilders heavily rely on imports from countries that have been directly targeted. China and Mexico are the primary sources for appliances and hardware imports, and Canada is a critical source of sawmill wood products.

While builders can adjust supply lines to account for tariffs by sourcing from other countries, the reciprocal tariffs would impact countries that could serve as alternatives. 

Vietnam has become a vital trade partner for the U.S., particularly for appliances, plumbing fixtures and trims. A Trump administration official said tariffs on Vietnam are in the works, even as U.S. companies signed trade deals with the country for goods worth more than $4 billion.

The plan to target the “dirty 15” is the latest sign that the Trump administration is looking for ways to implement reciprocal tariffs. Other recent reports indicated that the administration considered a plan to separate countries into three tiers with different tariff rates, as opposed to an individual rate on every good from every country. But this plan was shelved.

The uncertainty alone has homebuilders worried. The February and March readings of the National Association of Home Builders‘ (NAHB)/Wells Fargo Housing Market Index showed builder confidence falling by a total of eight points.

NAHB has heard anecdotal reports that despite many of the threatened tariffs not yet being in effect, builders are already pricing in $7,500 to $10,000 in additional building material costs. The trade group also asked Trump to exempt building materials from tariffs, arguing that it would contradict his executive order that calls for emergency home price relief.

In an attempt to offset the impact of lumber tariffs, Trump signed an executive order calling for increased lumber production in the U.S. But he also floated a reciprocal tariff on Canadian lumber that would have the U.S. match Canada’s tariff on U.S. lumber. (Canada does not have a tariff on American lumber.)

Complicating matters is that Trump’s end game with tariffs isn’t clear. He’s suggested, at various times, three primary rationalizations: to bring back American manufacturing, fight the federal budget deficit, and curb illegal immigration and fentanyl trafficking.

Trump’s initial one-month pause on Mexican and Canadian tariffs came in exchange for minor concessions on immigration and fentanyl. A Trump ally has indicated that China must stop its flow of fentanyl before the two countries engage in negotiations over tariffs.

Using tariffs to get concessions on these issues makes sense for Mexico, as about 98% of fentanyl seized in the U.S. comes from Mexico. There’s a migrant crisis at the southern border.

But less than half a percent of fentanyl comes from Canada, and there is no migrant crisis emanating from the north. China, meanwhile, is the source of chemicals used to make fentanyl — but not fentanyl itself.

The rhetoric alone may be alienating trade partners. Trump has engaged Ontario premier Doug Ford in back-and-forth threats of retaliation. The president has referred to Canada as an “abusive threat” and an “anti-American farmer,” in addition to ongoing threats to annex the country.