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The impact of the Trump administration’s recently announced tariffs on steel and aluminum on architects and the way they do projects does not appear to be dramatic, at least at this point, with a marginal increase in project costs appearing to be on tap.
Tariffs are used to restrict imports by increasing the price of goods and services purchased from overseas, making them less attractive to buyers. In the case of steel and aluminum, the Trump administration, in an effort to boost steelmakers located in the U.S., is levying tariffs of 25% and 10% respectively on imports of these materials from other countries, although (at press time) the list of countries affected is in a state of flux.
Industry response
As you’d expect, buyers of steel and aluminum, in the form of construction-industry groups whose members will be bearing the added costs of the tariffs, have come out strongly against these tariffs.
... buyers of steel and aluminum, in the form of construction-industry groups whose members will be bearing the added costs of the tariffs, have come out strongly against these tariffs.
"The Administration’s announcement of new tariffs on steel and aluminum imports threatens to drastically increase the prices of many building materials specified by architects,” according to a statement from American Institute of Architects President Carl Elefante, Executive Vice President/Chief Executive Officer Robert Ivy.
The AIA statement points out that inflating costs limits the range of materials available to architects as they try to design buildings on a budget; stifles innovation; could put a crimp in the Trump Administration’s proposed infrastructure plan; and [could] increase the potential for a trade war that risks impacting other building materials and products.
Meanwhile, “These new tariffs will cause significant harm to the nation’s construction industry, put tens of thousands of high-paying construction jobs at risk, undermine the President’s proposed infrastructure initiative, and potentially dampen demand for new construction projects for years to come,” according to a statement from Associated General Contractors of America's Stephen E. Sandherr.
Uncertainty
The impact of an increase in the price of raw steel, due to a 25% tariff, on overall building construction cost would be minor, in most cases less than 1%, according to Nick Butcher, managing director of the Cost/Risk Management Group of MGAC, an owner’s representative, cost/risk, and project management firm.
In a blog post on the MGAC website entitled “The Steel Tariff and Construction Cost: Putting It Into Context,” (http://www.mgac.com/blog/the-steel-tariff-and-construction-cost-putting-it-into-context/ ), Butcher also notes that as the market adjusts to the tariffs, “price uncertainty will elevate the level of risk that contractors and subcontractors face when bidding on projects.”
For architects designing churches and other types of projects, “Most will look at the price of steel, they will see an increase, and they will go to [the] client and say ‘budget for your project just went up,’” says James Theimer, principal architect at Trilogy Architecture in Redding, Calif.
The threat of tariffs is hitting a bidding environment where the dominant dynamic is increasing materials costs....
James Theimer, Principal Architect, Trilogy Architecture, Redding, CA
The threat of tariffs is hitting a bidding environment where the dominant dynamic is increasing materials costs – and it’s been that way for quite some time, Theimer notes.
The cost of steel has been steadily increasing over the past 15 years or so, according to Theimer.
“Normally, though, it goes up about 5%-10% per year,” he says, “but this year, it has spiked almost 30% during the past four to six months – which is huge.”
Aluminum prices are also on the increase, although the growth pace is not as dramatic, Theimer notes, adding that the primary reason for the increases in both of these materials is the rebound in commercial construction since the Great Recession.
In the case of steel manufacturers, spikes in demand for their product are causing them to raise prices on the product they have in inventory, Theimer reports, who explains that “They are raising their prices now, because the raw materials they need [to manufacture steel] may be more expensive in the future.”
The cost of building materials has indeed been climbing, agrees Phil Laney, Church Design Studio director and principal at the Atlanta office of the Lyman Davidson Dooley Inc. architecture, interior design and planning firm.
“And tariffs will drive those costs up even more,” Laney says. Typical rates of inflation are normally taken into account when estimating building costs, he notes, “but really sudden spikes are what can get [a] project into trouble.”
Typical rates of inflation are normally taken into account when estimating building costs ... “but really sudden spikes are what can get [a] project into trouble.” Phil Laney, Church Design Studio Director, Principal, Lyman Davidson Dooley Inc., Atlanta, GA
While tariffs on steel and aluminum will certainly impact the cost of projects, “We don’t see this impacting design,” says Jenny Hester, director of marketing at Live Design Group, a Birmingham, Ala.-based architect and interior design firm.
“Most of our projects are tilt-up concrete, which minimizes the steel structure, while still having roofing construction with longspan steel joists,” Hester says. She adds that “Generally, with the size of our projects, we can’t avoid using steel to build due to building occupancy classifications.”
End analysis
At the end of the day, when it comes to the impact of steel and aluminum tariffs on architects, the only certainty seems to be that these materials are going to cost more.
“As an architect, you are pretty much at the mercy of the bidding environment,” Theimer closes. “And one thing we’ve learned over time – prices are always going up, they never go down.”
