Tariffs have played a significant role in shaping global trade for centuries. Countries have used these taxes on imported goods to protect domestic industries, influence international relations, and more. In the interconnected 21st-century world, tariffs have the potential to impact the commercial real estate sector, affecting investment strategies, development costs, and international trade flows.
Understanding the complexities of tariffs is crucial for navigating the global economy and making informed decisions in the CRE market.
Tariffs in North America
Tariffs have a long, fascinating history in North America. They have played a key role in shaping the economic landscapes of the United States and Canada. In the 1800s, both countries used tariffs to protect their growing industries.
The 1828 U.S. “Tariff of Abominations” is a prime example of a tariff that caused serious political friction. Intended to protect nascent domestic industries, the tariff inflated the cost of imports by up to 50% and encouraged Americans to buy domestically. The problem? Many industries in the South relied on trade from Great Britain. They were less than thrilled by the fallout, especially as farmers and plantation owners worried the country across the pond would levy similar tariffs on American goods in retaliation.
Canada followed in 1879 with its own National Policy that introduced tariffs to boost domestic production and reduce reliance on imported goods. This policy created the groundwork for the country’s industrial growth to blossom.
By the 1900s, trade shifted. 1994’s North American Free Trade Agreement (NAFTA) significantly reduced tariffs between the U.S., Canada, and Mexico, leading to a boom in cross-border trade. Its updated version, the United States-Mexico-Canada Agreement (USMCA), further modernized trade rules in 2020, although then-president Trump frequently threatened tariffs to gain concessions during the talks leading up to the agreement.
The Trump administration had previously favored using tariffs as a trade policy tool. His most significant tariff action was against China, implementing tariffs on approximately $370 billion worth of Chinese goods during his first presidency. The rates varied from 7.5% to 25% across different product categories.
In 2018, he imposed 25% global tariffs on steel and 10% on aluminum imports, citing national security concerns under Section 232 of the Trade Expansion Act. These tariffs affected even traditional U.S. allies, although some countries received exemptions.
President Trump believes that trade deficits harm the U.S. economy and that tariffs could help bring manufacturing jobs back to America. He has described tariffs as payments made by foreign countries, although economists generally agree that U.S. consumers and businesses largely bear the cost.
Here are a few ways new tariffs could impact the CRE sector and associated industries.
Trade policy’s ripple effect: past and present
When governments shake up trade rules, real estate feels the tremors. Take the 1930s. What started as an attempt to shield American workers through the Smoot-Hawley tariffs ended up making a bad situation worse, deepening the Great Depression. We saw echoes of this history in 2018 when new U.S. tariffs on steel and aluminum sparked pushback from trading partners like Canada.
These trade decisions hit real estate in several ways. Construction costs jump when builders must pay more for materials (like steel), making new projects harder to justify but potentially boosting the value of existing buildings. While trade tensions can dampen overall economic growth and cool demand for commercial space, real estate often proves more stable than the stock market during economic turbulence.
Not all properties feel the heat equally. Warehouses and industrial spaces dependent on international trade take the biggest hit when tariffs increase. Meanwhile, apartment buildings and offices tend to remain insulated from these trade winds since their success depends more on local economic conditions than global trade flows.
Oxford Economics shared its briefing late last year on the impact of tariffs on CRE, suggesting that changes in trade policy will have a ripple effect. New tariffs targeting major trading partners like China, the EU, Mexico, and Canada wouldn’t hit all at once — their effects would likely roll out over time. While announcements may come early, the real economic impact might not show up until 2027.
When tariffs kick in, they tend to trigger a chain reaction. Import prices climb first, eating into household buying power as consumers face higher costs. Companies often try to absorb some of those costs to remain competitive, which squeezes their profits. To make matters more complex, U.S. exports take a hit when trading partners hit back with their own tariffs.
For CRE, these changes could play out in interesting ways. Rising inflation would likely affect property valuations across the board, and the bond market would likely react. However, there might be some short-term winners. Warehouse space could see increased demand if businesses rush to stock up before tariffs take effect. This boost would likely be temporary, and its impact could vary significantly by location and property type.
Oxford Economics believes the long-term picture suggests widespread effects as higher costs work their way through the economy. Savvy investors will need to watch both the timing of trade policy changes and how different property markets might respond.
Trade policy impact on building costs
New tariff proposals targeting imports from China, Mexico, and Canada could significantly reshape construction costs and timelines. While some materials like concrete and drywall are largely produced domestically, the U.S. construction industry relies heavily on global supply chains for many critical components.
Even seemingly “domestic” materials often rely on international inputs — U.S. metal producers, for example, frequently use iron ore sourced from Canada and Brazil. China dominates the global production of several essential materials:
- Aluminum used in storefronts and decorative features
- Over half of bathroom ceramics and glass mirrors
- A majority of the world’s crude steel
The impact extends beyond traditional building materials. Construction equipment, technical components, and rare earth minerals used in electronics primarily come from overseas. Tariffs will affect not only building materials but also the tools and technology used in modern construction.
The industry could respond in several ways. Large developers with dedicated procurement teams might be better positioned to navigate new sourcing strategies, while smaller firms could face more significant challenges. Some may opt to pay higher prices for familiar supply chains rather than risk delays resulting from finding new suppliers.
Economists suggest these trade policies could slow GDP growth, potentially cooling CRE development, particularly in the manufacturing and retail sectors. However, if combined with steady interest rates and lighter regulations, some industry experts believe the overall impact on CRE investment could be mixed.
Are you a commercial real estate investor — or looking for a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from 92 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
