Trump's trade war
How will it impact housing?
An observer describes the situation in the US like this:
The administration is effectively a feudal court wearing a representative democracy’s clothes. President Trump is a restless, aging king with little interest in detail but a profound concern with image and status. The factions in his administration (court), which are still evolving but number at least six semi-coherent groups, have their own agendas and will work hard to take Trump's general statements and present him with outcomes or ideas in search of his favour or advancement. Each faction will have to compete with the other to find approval, and each will be incentivized to present more radical or innovative policy proposals.
After a one-month delay, Trump is promising to impose across-the-board 25% tariffs on Canada and Mexico, starting today. What’s the likely impact?
A higher US dollar against the Canadian dollar, resulting in inflationary pressure in Canada and higher interest rates. An explanation of macroeconomic stabilization. [Update: the Bank of Canada notes that price increases will be one-time, and that initially domestic demand will likely fall more quickly than supply, so it’s possible that interest rates may fall at first rather than rising.]
Higher costs for building materials imported from the US, due to three factors: the higher US dollar, US tariffs on Canadian imports resulting in higher costs (such as Canadian steel that goes into American I-beams), and Canadian retaliatory tariffs (although they’ll be more selective than the American tariffs). The threat of a tariff war is already driving up housing costs. Angela Hennessy, CBC News.
Lower investment, because of economic uncertainty. As Paul Krugman says: “The rational thing is to hold off on big spending until, one hopes, there’s more clarity about policy.” Chaos is bad for business.
In short, housing is going to be facing even stronger headwinds. To continue building housing, we’re going to need more action to reduce the drag from excessive regulation and taxes.
The Economist notes that investors still don’t believe Trump will keep the North American tariffs in place - it’s like cutting off your own arm. It’ll be particularly brutal for the auto sector. Trump’s new tariffs are his most extreme ever:
Mr Trump has often professed his love of tariffs, believing they strengthen the American economy and generate revenue for the government. He has mused about levies on everything from cars to semiconductors, and on friends and foes alike. But many investors and company bosses had assumed that his protectionist talk was more bark than bite, and that he would back down again, especially on North American tariffs. Within seconds of Mr Trump’s statement that he was set to implement them, stockmarkets swooned. The S&P 500 index of large American firms ended the day nearly 2% lower, its biggest fall this year. And the decline probably would have been steeper but for residual suspicion that once the damage becomes evident, Mr Trump will roll back some of his measures.
I wouldn’t count on it. My guess is that we’re in for a Brexit-like situation: it’s obvious to everyone that this was a bad decision, but there’s no way to reverse it. To get more economic growth, we should be listening closely to economists.
Oh, come on. We've been reading for years how its about land costs. If it were the cost of *building* a wood-frame, then there would be little difference between rural Newfoundland and the West End. This is a gentle breeze, as headwinds go.
PS: About Trump not cutting off his own arm. FYI, investors, Saddam Hussein didn't mind that 170,000 kids died of cholera and typhus after Americans bombed the power plants for both water and sewer treatment. Saddam was not personally inconvenienced, you see.
Investors don't understand how these people think. They say that Trump keeps breaking norms, be he's not - he just has historical norms of any feudal lord.