President-elect Donald Trump. Trump speaks on a phone during his first term in a photo dated November 2018. (Image: Greg Lovett/Palm Beach Post/USA TODAY NETWORK via Imagn Images and Reuters Connect)

Trump wrote on social media, 鈥淎s one of my many first executive orders, I will sign all necessary documents to charge Mexico and Canada a 25% tariff on all products coming into the United States.鈥�

Trump also announced plans to levy an additional 10% tariff on all Chinese goods imported into the country, which will be in addition to existing sector-targeted tariffs already in place.

Notably, news sources claimed sources close to Trump had confirmed crude oil would not be exempt good and subject to the tariffs.

What will Trump鈥檚 North American tariffs mean for construction?

The three largest suppliers of goods to the US are the triad of countries that Trump has selected for his tariff programme. It鈥檚 estimated that about US$5.1 trillion is imported into the US annually from Canada, China and Mexico. This accounts for about 42% of all imported goods to America in a given year.

Flags of North America: from left, Canada, the US and Mexico. (Image: Adobe Stock)

But economists and construction leadership have warned that the effects of enacting such tariffs are currently 鈥渦nclear鈥� and could be a net negative long-term for both the US economy as a whole and the built environment. 

UK-based Oxford Economics, an independent economic advisory firm, issued a report earlier this month prior to Trump鈥檚 25 November announcement. In the report, the firm believed a more 鈥渢oned-down policy shift鈥� on tariffs were forthcoming, although the president-elect鈥檚 recent statements suggest he, instead, favours a more 鈥渆xtreme鈥� plan.

Even the 鈥渢oned-down鈥� tariffs, Oxford Economics said, 鈥渨ill drag down total exports from targeted economies in the medium term, with the impact concentrated on specific sectors such as automobiles and steels.

鈥淭his will naturally weigh on construction of warehousing and manufacturing facilities in these countries. The ensuing trade diversion and substitution will boost exports 鈥� and therefore construction of manufacturing and warehousing facilities 鈥� in other countries.鈥�

The firm noted that tariffs could take nearly one year to implement via legislation, which means the true impact may not be seen or felt until 2026.

How will OEMs be impacted?

Materials may be more expensive to acquire across the board, but some US-based original equipment manufacturers (OEMs) of construction equipment may be in for more headaches than their peers.

Trump 2.0 short-term good for construction but brings labour and housing risks, say economists Oxford Economics assesses potential impact of new Trump administration on global construction

For example, Bobcat announced it broke ground on a $300-million facility in Salinas Victoria, Neuvo Leon, Mexico, in June. The planned 65,032m2 manufacturing plant is set to produce compact track and skid-steer loaders. A communications representative from Bobcat told Construction Briefing the company was unable to comment at this time, noting it was 鈥渢oo early to know what will or will not take effect with the new, incoming administration.鈥� 

Caterpillar has multiple facilities in Mexico including a parts distribution centre, a components manufacturing site and six principal manufacturing plants. The company opened its first facility in Mexico in 1962. The OEM did not respond to a request to comment.

Trump鈥檚 tariffs may not hurt China much, could have broad impact in Asia

Representative image of China and US at the negotiation table. (Image: Adobe Stock)

Oxford Economics went on to say that the Chinese have previously circumvented tariffs levied by foreign countries successfully, and the firm expects they鈥檒l do so again.

鈥淭he impact of tariffs on China is not necessarily negative in the near-term, as it appears China may be getting around tariffs by exporting goods to a third country that are then adding some value, perhaps packaging, and then sending the same goods to the US market,鈥� explained the Oxford Economics report.

But there could be some downsides for China and its Belt and Road infrastructure initiative, particularly if internal strife in the real estate market continues. 鈥淚f the tariffs were to weaken the Chinese economy, they could limit the government鈥檚 ability to provide additional support for the ailing real estate sector. This, combined with the ongoing transition away from an investment-led economy may weigh on China鈥檚 appetite for foreign investment, which could see more Belt and Road Initiative projects delayed or cancelled.鈥�

If this were the scenario, Oxford Economics said it could lead to a general dip in construction activity throughout Africa and the Asia Pacific regions.

And one China-based OEMs could also suffer other impacts from the move. For example, XCMG, like Bobcat, announced this year it is investing in and constructing a manufacturing plant in Mexico, which would be its second in the region. XCMG did not return a request for comment.

How have other countries responded to Trump鈥檚 proposed tariffs?

Mexico President Claudia Sheinbaum. (Image via Reuters Connect)

Officials from Mexico, Canada and China and major industry groups warned that President-elect Donald Trump鈥檚 threat of hefty tariffs on goods would harm the economies of all involved, causing inflation to spike and damaging job markets.

鈥淭o one tariff will follow another in response and so on, until we put our common businesses at risk,鈥� Mexican President Claudia Sheinbaum said during a regular press conference. Sheinbaum said she planned to send a letter to Trump and would seek a call with him to discuss the issue.

The threatened levies would appear to violate the terms of the US-Mexico-Canada Agreement (USMCA) on trade. The deal, which Trump signed into law, took effect in 2020 and continued the largely duty-free trade between the three North American countries; the deal sunsets in 2026.

Warren Maruyama, former general counsel for the US Trade Representative under President George H.W. Bush, said Trump鈥檚 threat could be acted on with relative ease by declaring a national emergency, which would unlock the International Emergency Economic Powers Act. 鈥淚f precedent is any indication, it鈥檚 a serious uphill fight鈥� to challenge actions taken under that umbrella, he said.

A Bank of Canada official said that any move by Trump to deliver on the threat would reverberate on both sides of the US northern border.

鈥淲hat happens in the US has a big impact on us, and something like this would clearly have an impact on both economies,鈥� Deputy Governor Rhys Mendes said during an audience question-and-answer session in Charlottetown, Prince Edward Island.

A spokesperson for China鈥檚 embassy in Washington said: 鈥淣o one will win a trade war or a tariff war.鈥�