U.s., China Tariff Détente Has Big Implications For Homebuilders

The tit-for-tat trade war between China and the United States has deescalated for the first time since President Donald Trump took office, as the two countries announced Monday morning that they will temporarily lower their respective tariffs.

The U.S. will drop its 145% tariff on China to 30%, while China will lower its levies from 125% to 10%. The suspension of these tariffs will last for 90 days as the two sides negotiate a broader trade deal, which will place heavy emphasis on China combating fentanyl trafficking.

The 30% tariff on China includes the 10% baseline tariff Trump placed on all foreign nations on April 2, and 10% tariffs he twice hit China with at the beginning of his term. A 25% tariff on steel and aluminum imports also remains in place.

Many American industries will breathe a sigh of relief at the news, including homebuilders, which heavily rely on China for construction imports. According to data from the National Association of Home Builders (NAHB), 27% of imports used in residential construction come from China.

Builders import 73% of small appliances and 44% of major appliances from China, and 67% of small appliance imports and 30% of major appliances imports also come from China. China is also a key provider of glass, plumbing fixtures and hardware.

Estimates vary, but data from Cotality concluded that tariffs would add anywhere from $17,000 to $22,000 to the cost of building a home. A John Burns Real Estate Consulting (JBREC) analysis landed at $12,800.

The deal comes at a critical junction of the trade war, as fears of shortages, inflation and job loss have come to a head. Reports surfaced last week that Chinese cargo vessels bound for California simply did not leave. Cargo at the Port of Los Angeles have dropped by 35% year over year.

With the reprieve on China tariffs, the most dramatic parts of the trade war have been put on hold. Trump shocked the world when he announced a new global tariff regime that placed devastating tariffs on every country in the world, including some of the U.S.’s closest allies.

The announcement sent markets into free fall, and mere hours after the tariffs went into effect, Trump paused them for 90 days. A 25% tariff on Canada and Mexico is also on pause, but only for goods that fall under the United States-Mexico-Canada Agreement, the trade deal Trump negotiated during his first term.