How Trump’s U.S.-Canada Tariffs Impact the Housing Market

With President Trump enacting tariffs on all Canadian products, it’s most likely the start of a trade war between the U.S. and Canada. I’m not a poli-sci major, but I figured I would do a deep-dive on how Trump’s U.S.-Canada Tariffs impact the housing market and possibly hit homeowners and homebuyers where it hurts. With new 25% tariffs on all goods (10% on oil) in place, the cost of construction materials in the US (like lumber and steel) will likely start climbing, adding pressure to an already strained housing sector. These increased costs in the US could also start happen North of the 49th parallel in a chain of economic events.

For those keeping an eye on the market, the U.S.-Canada tariffs impact could mean higher home prices, delays in new builds, and a ripple effect across the economy.

What Is a Tariff?

A tariff is basically a tax imposed by a government on imported or exported goods. Tariffs are typically in response to an economic situation where that government feels the need to regulate trade between themselves and other countries. This is to protect domestic industries by making foreign goods more expensive or to generate additional revenue.

There are two main types of tariffs:

• Ad Valorem Tariffs: A percentage-based tax applied to the value of imported goods.
• Specific Tariffs: A fixed fee imposed per unit of an imported item (e.g., a $5 tariff per tonne of steel).

In the context of Trump’s U.S.-Canada tariffs, tariffs on Canadian lumber, steel, and aluminum make these materials more expensive for American businesses. In turn, Canadian producers may face declining demand, leading to potential job losses and price fluctuations within Canada’s housing sector: If the U.S. buys less from Canada due to tariffs, Canadian companies might struggle, leading to job losses and unpredictable housing costs—either rising due to supply issues or falling due to weak demand.

How Are Tariffs Paid?

If you listen to the president, you might think they need an “External Revenue Service” to collect these tariffs. Others may tell you that tariffs are directly paid by foreign governments, but neither of these situations are the case. Instead, tariffs are paid by importers, typically U.S. companies that bring goods into the country. Here’s how it works:

1. The Import Process
   • When a U.S. company imports goods from Canada (e.g., lumber or steel), they must pay the tariff at the border.
   • The U.S. Customs and Border Protection agency collects the tariff before the goods are allowed into the country.
2. Who Actually Pays for the Tariff?
   • Importers (U.S. businesses) pay the tariff initially, but they often pass the cost down the supply chain.
   • Manufacturers and retailers using these imported goods adjust their prices accordingly, increasing costs for consumers.
   • Consumers ultimately bear the financial burden through higher prices on products that use these materials, including housing and construction projects.
3. Impact on Canadian Exporters
   • Canadian suppliers may try to lower their prices to remain competitive in the U.S. market, but this can cut into their profits.
   • If demand for Canadian goods declines due to higher costs for U.S. buyers, Canadian businesses may suffer, potentially leading to job losses and economic slowdowns.

To make a long story less long, while the tariff is technically paid by the company that is importing the Canadian good, the cost is ultimately absorbed by businesses and consumers—either in the form of higher prices or reduced demand for products. This is why the U.S.-Canada tariffs can cause such a ripple effect in our economy.

The Impact of Trump’s U.S.-Canada Tariffs on Building Materials

The U.S. tariffs target key building materials such as lumber and steel, which are obviously important to construction projects and will ultimately affect the supply of available homes (and purpose built rentals). With Canada being a major exporter of softwood lumber to the U.S., these tariffs disrupt the supply chain, leading to increased costs for builders.

According to industry experts, the added expenses from tariffs could raise construction costs in the US by up to 20%. This surge is attributed to higher prices for imported materials and potential shortages as builders seek alternative sources.

Well, okay. The U.S. would be paying more for lumber and other resources, but how would that cause prices for Canadian buyers to increase? Simply put, the revenue/profit that the Canadian suppliers would lose from the (probable) decrease in purchase from state-side buyers would need to be made up somewhere. So in order to stay profitable, lumber companies may raise prices for domestic buyers (i.e., Canadian homebuilders) to offset lost income from the U.S. market.

Consequences for Homebuyers and the Impact on the Housing Market

As construction costs climb, builders are likely to pass these expenses onto consumers. Prospective homebuyers may face higher prices for new homes, with estimates suggesting an increase of 5-10%. That might seem small but when the build cost for new homes hovers around $300-$400 per square foot, that could mean an increase in build cost of $26k – $50k on a 1500 sqft home. Let’s not even begin to speculate how much that would boost the builder’s sale price on those new builds.

Higher supply costs, higher build costs, higher mortgage costs North of the border could mean a return of inflation and the dreaded interest rate hikes to counter act that.

This escalation not only affects affordability but could also deter first-time buyers, slowing down the housing market’s momentum. Additionally, ongoing projects might experience delays as developers reassess budgets and pivot to find alternative sources for their materials.

For Canadians hoping to enter the market, the U.S.-Canada tariffs housing market impact could mean fewer affordable housing options, higher mortgage costs, and increased demand for rentals.

Broader Economic Implications of Trump’s U.S.-Canada Tariffs

Beyond the housing sector, Trump’s U.S.-Canada Tariffs would have ripple effects across the Canadian economy. Increased costs for businesses can lead to higher consumer prices, contributing to inflationary pressures. (Which could mean rate hikes could come back…)

Moreover, retaliatory tariffs by Canada could further strain trade relations, impacting other industries reliant on cross-border commerce. The uncertainty surrounding trade policies may also dampen investor confidence, affecting economic growth projections. In response to proposed U.S. tariffs, Ontario Premier Doug Ford has threatened to cut off electricity exports which would disrupt power supplies in states like New York, Michigan, and Minnesota.

While this could pressure U.S. officials, it also risks hurting Ontario’s own economy, as energy exports generate significant revenue. Retaliation from the U.S. could lead to additional tariffs on Ontario industries, escalating the trade dispute further. Ultimately, while the threat is a strong bargaining tactic, following through could create more economic harm than leverage for Ontario.

As more industries adjust to these trade policies, Trump’s U.S.-Canada tariffs could extend beyond residential real estate into commercial properties and infrastructure development. If you have questions or need further insights on how these tariffs might affect your housing decisions or the broader market, feel free to reach out directly.

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