25% Tariffs On Mexico And Canada Begin, Adding Uncertainty To CRE Outlook

President Donald Trump just enacted 25% tariffs on goods from Canada and Mexico, effectively ending any chance for a last-minute deal to avoid penalties on two of the U.S.’s most important trade partners.

This move is expected to have significant implications for the commercial real estate sector.

“They’re all set. They go into effect tomorrow,” Trump stated Monday afternoon from the Oval Office, according to CNBC.

Trump emphasized that there was “no room left for Mexico or for Canada” to avert the new tariffs, fueling concerns about a potential North American trade war that could ripple across various industries. The tariffs are primarily aimed at pressuring the U.S.’s neighbors to curb fentanyl trafficking into the country.

In response, Canada announced it would implement 25% tariffs on $100 billion worth of U.S. goods. Trump also plans to impose a 10% tariff on China, in addition to the 10% already set in February. China has indicated it will take countermeasures. Earlier in February, Trump signed proclamations to impose a 25% tariff on steel and aluminum imports from all countries, along with reciprocal tariffs on other nations, as part of his efforts to reshape the global trade system.

“Reciprocal tariffs start on April 2,” Trump remarked Monday, joking that he had considered starting them on April 1 but didn’t want it to coincide with April Fool’s Day.

While it remains unclear whether the tariffs will hold or if Trump will change course—as he did in February after initially signing an order to impose tariffs on Mexico, Canada, and China—CRE professionals are already preparing for the fallout.

Julie Workman, a real estate attorney in Illinois, explained that the uncertainty surrounding the tariffs has already caused significant delays in the development sector.

“Uncertainty causes delay, and ultimately, delay kills deals,” Workman noted.

The tariffs could benefit industrial real estate by encouraging onshoring, but they also pose risks. For example, they may increase construction costs, slow down projects, and push up housing prices—issues that prompted the National Association of Home Builders to request an exemption for building materials before Trump’s previous tariff delay in February.

In anticipation of these tariffs, some in the construction industry began stockpiling materials last year, and the rising costs of construction materials became more pronounced. In January, the cost of materials used in construction surged at its fastest pace in two years as contractors rushed to secure products before tariffs took effect.

Spencer Levine, president of RAL Cos., a luxury developer in New York City, expressed concern about the unpredictability of the market.

“Quotes for products like rebar, glass, steel, and aluminum for our upcoming projects are now expiring after only days,” Levine said. “Typically, quotes for such contracts remain in place for months at a time.”

The uncertainty has made it harder to plan projects, even though vendors are stockpiling materials in preparation. Mexico supplies key building materials like concrete, cement, roofing materials, steel, glass, and windows to the U.S., while Canada provides lumber, aggregates, steel, aluminum, and asphalt. China remains a crucial supplier of various construction materials, including steel and glazing glass.

Tim Jed, Supply Chain Leader at DPR Construction, noted that China produces about 54% of the world’s crude steel and supplies a significant portion of common building materials, including a quarter of materials like building stone or cement, as well as 57% of glazing glass.

“The impact of tariffs on materials used in construction will likely lead to increased costs, which lenders will need to consider when financing projects,” said Daniel Diaz Leyva, chair of the real estate practice at Day Pitney in Florida.

He predicted that suppliers would likely pass the cost of the tariffs onto their customers.

In an effort to avoid these tariffs, Canadian Prime Minister Justin Trudeau invested 1.3 billion Canadian dollars ($900 million) in measures to strengthen border security, including appointing a “fentanyl czar” and deploying military surveillance resources. Mexican President Claudia Sheinbaum also worked to prevent the tariffs, noting that Mexico had already sent 10,000 National Guard troops to help secure the border and dismantled over 100 synthetic drug labs.

Despite these efforts, both Canada and Mexico are preparing for retaliatory tariffs. Sheinbaum emphasized that Mexico had contingency plans in case the U.S. followed through on its tariff threats. Trudeau similarly warned of retaliatory tariffs from Canada.

Economists and industry experts have raised alarms that these tariffs could lead to inflation. On Monday, Berkshire Hathaway CEO Warren Buffett warned that tariffs could hurt consumers by driving up costs.

“Tariffs are an act of war, to some degree,” Buffett said in an interview with CBS News. “They are a tax on goods, and over time, they hit consumers.”

Business leaders also voiced opposition to the tariffs, citing the negative impact on trade, tourism, and the broader economy. Jessica Walker, president of the Manhattan Chamber of Commerce, emphasized the value of Canadian trade and tourism, noting that Canada accounted for $23 billion in goods and services purchased from New York in 2023, with one million Canadians traveling to the U.S. the same year.

“We strongly oppose the imposition of these tariffs on our top trading partners, particularly Canada,” Walker said, warning that the tariffs would threaten jobs, businesses, and the economy at large.

Source: Bisnow