President Donald Trump’s plan to slap tariffs on steel and aluminum has produced a firestorm of reaction, as economists and industry leaders decry what they view as a misguided policy change.
Still, David Payne, staff economist for the Kiplinger business report, is among those who believe Trump will not retreat from his call for a 25 percent tariff on steel and a 10 percent tariff on aluminum entering the United States.
“Tariffs are a signature item for Trump, something he built his brand on during the campaign,” Payne said. “But if retaliatory action does come, Congress may demand he change his mind, even more than it is demanding now.”
Payne said steel and aluminum represent about 13 percent of construction costs associated with nonresidential buildings, including commercial, health care and industrial structures. Applying that standard, the proposed tariffs would add 2 to 4 percent to the cost of such buildings, “a figure that could prove quite significant on larger projects,” he said.
Economist Ray Perryman said he sees little to like in the proposed tariffs.
“Consumers lose. Businesses which use steel or aluminum as inputs lose. And we are likely to see far more jobs lost than those protected or gained,” Perryman wrote in an email. “Add to that the potential for other countries to retaliate, and the situation could quickly escalate into a very damaging trade war.”
Perryman said there are legitimate issues with steel and aluminum being exported by China, “where there is excess production capacity and therefore artificially low pricing,” but the appropriate response is to address that situation specifically through “existing mechanisms.”
“The benefits of trade were worked out about 200 years ago, and history has repeatedly and consistently proven that free trade leads to better outcomes for all,” he wrote. “The economics of these tariffs are clearly bad news, with very little, if any, gains to offset some very large potential losses.”
Gene Hall, spokesman for the Waco-based Texas Farm Bureau, said the bureau is most concerned about reaction from other countries.
“Agriculture does not fare well when it comes to a real trade war. China buys a significant amount of soybeans, and Texas grows a lot of cotton and has become a player in wine production,” Hall said, listing potential targets for retaliation. “Too, negotiations on NAFTA do not need to go sideways. Like any 25-year-old agreement, it needs tweaking, but it needs to exist in something close to its current form. Exempting Mexico and Canada from the tariffs is something that could be addressed in the negotiations.”
Trump has repeatedly said the North American Free Trade Agreement needs to be renegotiated or scrapped.
Chuck Dowdell, director of public works for the city of Waco, said tariffs would become another factor to consider when contracting for street construction.
“It all gets down to market price,” Dowdell said. “We put our projects out to bid, and the lowest bidder who meets specifications and qualifications gets the work. Increases in the cost of material are going to play a part, as are increases in the cost of labor. I don’t know that tariffs would have more of an impact than, say, Hurricane Harvey, which has caused a concentration of folks providing relief and construction on the Gulf Coast.”
Owens-Brockway is among the largest producers of glass containers in the world, with plants in North and South America, Europe and Asia. Its facility in Waco produces containers primarily used by the beer industry.
Owens-Brockway spokeswoman Kristin Kelley said she does not know if the company has considered the impact of a 10 percent levy on aluminum and whether it would increase demand for glass bottles.
“But that is something we can investigate,” Kelley said.
Scott Bland, president of the Heart of Texas Builders Association, said the tariffs could have a chilling effect on state highway construction projects, including the widening of Interstate 35 through Waco.
A local Texas Department of Transportation official referred questions to officials at the headquarters in Austin, who did not return a call for comment.
Bland Cromwell, an industrial real estate specialist with Coldwell Banker Jim Stewart Realtors, said he does not believe tariffs could quench demand for commercial and industrial space in Greater Waco, though they could put upward pressure on lease rates over the long haul.
“The market is still strong, and we’re almost completely out of distribution space,” Cromwell said.
He said a prospect he and the Greater Waco Chamber of Commerce have been courting soon may go public with plans to open a new manufacturing plant employing 100 to 250 people in a few years.
A development proposed by the Dallas-based Stainback Organization at State Highway 6 and Interstate 35 would also require significant construction. Cromwell said several commitments have been secured, and Stainback would place the first phase on 100 of more than 300 acres available at the site.
Increased construction costs, which may or may not materialize, “would be a nonfactor in the development of this site, though they could require some adjustments in rent,” Cromwell said.