The impact of tariff changes on home building and renovation in the U.S. and Canada

Recent statements by the newly inaugurated U.S. President, Donald Trump, propose a significant 25% tariff increase on Canadian imports starting the 1st of February, which would affect a wide range of goods, including steel, aluminum, and other essential construction materials. While the tariffs primarily target key materials like steel and aluminum, they would also affect critical building products such as lumber, drywall, insulation, and concrete.

If these tariffs are implemented, they could have profound effects on the construction industries in both the U.S. and Canada, with the impact varying significantly by region due to differing reliance on specific materials and regional trade dynamics.

The scope of the proposed tariff increase

The tariff increase is part of a broader trade strategy targeting Canadian goods, which includes everything from steel and aluminum to softwood lumber and cement. According to the Office of the U.S. Trade Representative (2023), Canada is the largest foreign supplier of steel and aluminum to the U.S., and these materials are essential for residential and commercial construction projects in both countries. A 25% tariff increase would likely drive up costs for builders and renovators on both sides of the border, especially in regions with high reliance on Canadian imports.

Softwood lumber has been a longstanding issue in U.S.-Canada trade, with existing tariffs ranging from 20% to 30%. The proposed increase in these tariffs would exacerbate challenges, especially for U.S. builders, already facing volatile lumber prices in recent years (CIBC, 2023).

Similarly, cement and concrete products, vital in the construction of non-stick frame homes like ICF (Insulated Concrete Forms) or panelized prefab concrete houses, are also critical to the broader construction supply chain. However, the regional nature of these tariffs means that their impacts may differ greatly depending on where in the U.S. or Canada the construction projects are taking place.

Regional differences in tariff impact: U.S. and Canada

The impact of the proposed tariff increases will not be uniform across the U.S. or Canada. Various regions are more reliant on certain construction materials, which means the burden of increased tariffs will be felt differently depending on geographic location.

U.S. regional differences: Washington, New York, and beyond

In the U.S., regions like Washington State (WA) and New York (NY) will likely face different levels of impact based on their reliance on Canadian imports, particularly softwood lumber, steel, and aluminum. Washington, with its proximity to Canadian lumber mills, is heavily reliant on Canadian softwood lumber imports.

The U.S. imports a significant amount of softwood lumber from Canada, especially from British Columbia (BC), which would be subject to higher tariffs if the proposed changes take effect.

For builders in Washington, the 25% tariff increase would result in steeper lumber costs, adding significant pressure to already strained supply chains. Washington’s homebuilders, who often deal with higher construction costs due to expensive land and labor, would feel these tariff impacts most acutely, possibly leading to higher prices for homes.

In contrast, New York State, while still impacted by rising lumber prices, also relies more heavily on imports of steel and aluminum, particularly for urban construction projects like high-rise buildings, bridges, and roads. The proposed 25% tariff on steel and aluminum would likely increase construction costs in New York, where steel is a fundamental material for large-scale urban developments.

These tariff hikes could further increase building costs for both residential and commercial projects, contributing to the rising cost of living and reducing housing affordability in cities like New York City and Buffalo.

Other U.S. states along the East Coast, such as Massachusetts and Maine, would similarly face increased material costs, particularly for steel and aluminum. However, their relative reliance on Canadian lumber would be less than in states like Washington or Oregon, so the impact on residential construction may be less pronounced in those areas.

Canadian regional differences: British Columbia and Ontario

The impact of tariff changes in Canada would likely vary by region. In British Columbia (BC), where softwood lumber production is a key industry, the effects would be felt primarily through slowed exports rather than higher lumber prices. BC is responsible for nearly half of Canada’s softwood lumber production, with a substantial portion exported to the U.S. (Natural Resources Canada, 2022). A 25% tariff increase would likely reduce lumber exports from BC to the U.S., creating an oversupply in the province. This oversupply could, in turn, lead to a decrease in lumber prices within BC.

However, the broader impact of the tariffs would be felt in other components of home construction. Homebuilders in BC, already grappling with high costs due to supply chain disruptions and rising demand, would face increased prices for a variety of essential home-building materials. These include mechanical systems like ERV and HRV units, electrical components, furnaces and heat pumps, and household appliances. With the housing market already tight in BC, these additional cost burdens would put further pressure on homebuilders, especially in the construction of single-family and multi-family homes.

Ontario (ON), on the other hand, while also reliant on imported materials, has a more diverse supply chain and a larger industrial base. Builders in Ontario are more likely to rely on steel, aluminum, and concrete from both the U.S. and domestic suppliers.

The increased tariffs on steel and aluminum could drive up construction costs for commercial buildings, infrastructure projects, and urban residential developments, particularly in cities like Toronto. However, because Ontario's reliance on lumber is less significant compared to BC, the impact on homebuilding in Ontario may be somewhat mitigated compared to western Canada.

Additionally, Ontario’s market is more likely to explore alternatives to traditional stick-frame construction methods, including modular homes and concrete-based systems. The higher cost of lumber might accelerate the adoption of non-stick-frame housing methods, such as ICF or prefab concrete homes, which use more concrete and steel, materials that would be directly affected by the steel and aluminum tariffs.

Impact of tariffs on cement and concrete supplies

The proposed tariff increases also raise concerns regarding cement and concrete, especially for builders looking to move beyond traditional wood-frame construction to more resilient building methods, such as ICF homes or encapsulated panelized concrete homes.

Cement is a critical component of these alternative building methods, and any increase in tariff costs on Canadian cement exports to the U.S. could disrupt supply chains and raise prices.

For instance, regions in the U.S. that rely heavily on Canadian cement imports, such as the Northeast (including New York and New Jersey) and the Midwest, could face higher prices or supply shortages. If Canadian cement becomes more expensive due to tariffs, U.S. builders may turn to domestic cement sources, but with domestic supply often limited, this could result in further price inflation and delays.

The U.S. has cement production capacity, but it is not sufficient to fully replace the volume of Canadian imports, especially given the rising demand for concrete in both residential and commercial projects.

In Canada, while cement production is relatively self-sustaining, especially in regions like Quebec and Ontario, higher tariffs on U.S. imports of concrete products could result in higher costs for builders who need to source specialized concrete products or equipment from the U.S.

Again, regions with more reliance on concrete for non-stick-frame homes—such as parts of Ontario and Quebec—could face steeper costs for cement and concrete, potentially making ICF and prefab concrete construction more expensive.

Canadian retaliation and broader economic impacts of raising US tariffs

If the U.S. goes ahead with these tariff increases, it is widely expected that Canada will retaliate with its own tariffs. Canada has historically responded to U.S. tariff actions by targeting U.S. products that are essential to various industries, such as agricultural goods, machinery, and electronics. For example, Canada could place tariffs on U.S. goods such as agricultural products, industrial machinery, and consumer goods like cars and electronics.

This retaliation would likely cause a ripple effect, increasing the costs of goods and materials already subject to tariffs, such as steel, aluminum, and cement, and extending the disruption to broader sectors, including agriculture and manufacturing. The retaliation could have significant economic consequences, slowing down trade and manufacturing in both countries and ultimately, raising costs for consumers and businesses in both nations.

The regional impact of a tariff hike retaliation

The regional impact of Canadian retaliation would be felt differently across the U.S. and Canada, based on the industries that each region relies on. For instance, U.S. states that rely heavily on Canadian agricultural imports - like Vermont, New York, and Michigan - could experience higher prices on basic foodstuffs. At the same time, Canada’s agricultural sector, which exports significant quantities of products like dairy, beef, and grains to the U.S., could see reduced demand or increased tariffs on its exports, adding another layer of economic strain.

For Canadian builders, retaliation in the form of tariffs on U.S. goods could worsen the situation. If key building materials, such as steel and aluminum, become more expensive due to retaliatory tariffs, construction costs would rise across Canada.

Builders in Ontario, Quebec, and the Maritimes - regions more dependent on U.S. imports - would be especially vulnerable to these increased costs. Moreover, both U.S. and Canadian businesses could face disruptions to their supply chains, leading to delays in construction and renovation projects across North America.

Strategic responses and mitigation for increased tariffs

Both U.S. and Canadian stakeholders may seek policy solutions to mitigate the impact of these tariffs. In the U.S., homebuilders and manufacturers could lobby for exemptions or reduced tariff rates on materials critical to construction.

Similarly, in Canada, the government could negotiate with the U.S. to avoid or reduce these tariffs, or Canadian manufacturers could increase the production of critical materials like cement and steel.

For regions like BC and Washington, which are highly reliant on lumber, the increase in tariffs could prompt more reliance on alternative building materials like concrete, which would be less affected by the tariff hikes on lumber and steel.

Likewise, the increased cost of lumber might encourage builders in Ontario and Quebec to adopt more concrete-based construction methods like ICF or prefab panelized concrete homes, which offer long-term energy efficiency benefits.

Conclusion: tariff increases = disruption for homeowners

The proposed 25% tariff increases on Canadian goods, including steel, aluminum, lumber, and cement, will have regionally specific impacts on homebuilding and renovation projects in both the U.S. and Canada. In regions like Washington and British Columbia, where softwood lumber is a key material, the tariff hikes will have a particularly heavy impact, raising costs for builders and exacerbating housing affordability issues.

In contrast, urban regions like New York and Ontario, with a greater reliance on steel, aluminum, and concrete, will see rising costs for commercial and residential projects, potentially accelerating the adoption of alternative construction methods like ICF or prefab concrete homes.

If Canada retaliates with its own tariffs, the economic strain could worsen, especially in regions with high exposure to trade with the U.S. The U.S.-Canada trade relationship is highly interconnected, and any disruptions will reverberate throughout both economies, slowing construction, raising prices, and further straining housing affordability. Both countries will need to carefully consider the long-term consequences of escalating tariffs on the construction industry and broader economic sectors.

Sources:

1. _{United States International Trade Commission (USITC), 2022. "U.S. Imports of Steel."}
2. _{CIBC, 2023. "The Future of U.S.-Canada Softwood Lumber Trade."}
3. _{National Association of Home Builders (NAHB), 2022. "Impact of Lumber Tariffs on U.S. Home Prices."}
4. _{Natural Resources Canada, 2022. "Canada’s Softwood Lumber Industry."}
5. _{The Globe and Mail, 2022. "Canada Poised to Retaliate Against U.S. Tariffs."}
6. _{Office of the U.S. Trade Representative, 2023. "U.S. Trade with Canada."}
7. _{Ecohome press release about tariffs January 21st 2025}