President Donald Trump has imposed sweeping 25% tariffs on Canada and Mexico to pressure the U.S. neighbors to step up border enforcement—but homebuilders say they could boost new home prices.
The tariffs on America’s two largest trading partners took effect early on Tuesday, along with an additional 10% tariff on China, after Trump said the countries had failed to show enough progress in limiting the flow of illegal drugs and unauthorized immigrants into the U.S.
“This move to raise tariffs by 25% on Canadian and Mexican goods will harm housing affordability,” National Association of Homebuilders Chairman Buddy Hughes tells Realtor.com®. “Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices.”
Hughes urged the Trump administration to reconsider the new tariffs, and pledge to continue working with policymakers on ways to boost housing production and improve housing affordability.
About 70% of the dimensional lumber and drywall gypsum used in residential construction is imported from Canada and Mexico respectively, according to industry data. China is a source of some fixtures and finishes used in homes, though it is a less significant player in the homebuilding supply chain.
“Rising costs due to tariffs on imports will leave builders with few options,” says Realtor.com Chief Economist Danielle Hale. “They can choose to pass higher costs along to consumers, which will mean higher home prices, or try to use less of these materials, which will mean smaller homes.”
Hale notes that while homebuilders and newly built homes will bear the initial brunt of the tariffs, the impacts could ripple out to the overall housing market in time.
“The premium on new construction homes that had been shrinking in many markets according to Realtor.com data could begin to rise again, or we may see buyer’s willingness to pay rise for existing homes as newly built homes get pricier—which would mean rising prices for existing homes, too,” she says.
“We may also see a lower appetite for major remodeling projects that would rely on these tariff-affected inputs, hamstringing the ability of consumers to remake their homes to fit their current needs,” says Hale.
Trump calls for more logging to replace foreign lumber
Trump has said that the U.S. is too reliant on foreign lumber, and on Saturday he signed executive orders aimed at ramping up domestic timber production and opening up new swathes of national forests for logging.
Environmental groups condemned the move, but the Trump administration says that expanded domestic logging will help bring down building costs and reduce U.S. dependency on Canadian lumber.
As well, a senior White House official tells Realtor.com that the tariffs on Canada, Mexico, and China are a national security measure narrowly targeted at halting the international drug trade and illegal immigration, and are not intended as a long-term economic policy.
The official suggested that the tariffs on Canada and Mexico might not last long enough to significantly impact the supply chain for housing, which has timelines that can stretch over multiple months.
“This is not a trade war, this is a drug war,” Commerce Secretary Howard Lutnick told CNBC on Tuesday morning. Lutnick cited an April 2 deadline for a report Trump has ordered on rebalancing trade deals, saying it would be a time for “lots of discussion on how to reset trade correctly.”
Nevertheless, Canada and Mexico swiftly retaliated by imposing their own tariffs on U.S. goods, raising the specter of a widening trade war.
Canadian Prime Minister Justin Trudeau slammed the new tariffs in a fiery press conference, calling them “a very dumb thing to do” in remarks addressed directly to Trump.
Ontario Premier Doug Ford also vowed to cut off electricity that his province supplies to 1.5 million customers in several U.S. states, including New York, Michigan, and Minnesota.
It’s also unclear exactly what steps Canada, Mexico, and China would have to take on drug and border enforcement to satisfy the White House and end the new tariffs.
The stock market has responded grimly to the trade drama, with the S&P 500 down about 3.7% from a week earlier, as Trump’s intent to impose the tariffs became clear.
“Markets have predictably reacted badly, since this raises the risk that Trump will also follow through on his threats to impose reciprocal country-specific tariffs soon, including a proposed 25% on imports from the EU,” says Paul Ashworth, Chief North America Economist for Capital Economics.
Trump initially announced tariffs against Canada, Mexico, and China in early February but suspended the measures against the U.S. neighbors for 30 days, saying he expected to see them make strides in border enforcement.
He did impose a 10% tariff on China early last month, bringing the total new tariffs on that country to 20% now. Trump has said China needs to crack down on the production of precursor chemicals used to make the deadly drug fentanyl.
Trump is due to address a joint session of Congress on Tuesday night, and he is expected to address the economy and inflation in his remarks.
Keith Griffith is a journalist at Realtor.com covering housing policy, real estate news, and trends in the residential market. Previously, his work has appeared in Business Insider, The Street,