Michael Lewis
Special to Ontario Construction Report
Ontario builders are eyeing a pivot to local and offshore suppliers of construction materials currently sourced from the U.S. including ceramics and architectural glass, specialized machinery and HVAC components.
That’s because those goods could be subject to a 25 per cent countervail tariff as part of Canada’s response to President Trump’s threatened 25 per cent duty on all Canadian exports to the U.S.
But the shift is not without its challenges.
Aside from straining relations up and down the supply chain, a reconfiguration of long-established contracts would increase costs for Canadian builders and contractors as they compete for goods from a smaller pool of suppliers less impacted by tariffs, according to Bruce Reynolds, a partner with Canadian construction law firm Singleton Reynolds.
And it could force the use of replacement suppliers with longer lead times. resulting in more project delays and increased disputes in a construction sector where costs continue to rise post-pandemic, albeit at a slightly slower pace Statistics Canada data shows.
The construction industry relies on commodities vulnerable to tariffs and depends on cross-border supply chains not easily torn asunder, said Richard Lyall, president of the Residential Construction Council of Ontario.
“Projects have been priced out, orders have been placed and built into the cost of the project,” he said, adding that if the Trump tariffs become a reality RESCON would join industry voices calling on Ottawa to carve out building materials from goods subject to countervail.
And while Trump has agreed to a 30-day delay in application of his across-the-board punitive duties in Canada and Mexico, putting Ottawa’s retaliation in limbo as well, Lyall said “the threat is still there.
“The big problem is the uncertainty. Money and investment work on predictability. If you’ve got this uncertainty out there it makes it very difficult — how do you price a new project. You’re not sure what’s going to happen to your supply chain so it will have a chilling effect on housing supply.”
And there’s a likelihood of increased litigation arising from supply chain disruptions, breach of contract claims and clashes over contract mechanisms that may or may not provide relief from tariffs.
Still, some argue the cost of tariffs outweighs the risk of supply upheaval.
“All Canadian importers in the residential supply chain will need to look at alternatives to U.S. goods upon which Canadian countervailing tariffs are placed, seeking sources in Canada and from other countries,” said Canadian Home Builders’ Association CEO Kevin Lee.
“This will take time, and products will still likely be more expensive than the U.S. goods prior to tariffs, though they may be less than the 25 per cent increase. All efforts to buy Canadian where possible will also serve to bolster our economy now and into the future.”
As it is, potential U.S. tariffs and retaliatory measures would increase building costs by approximately 4 per cent, said Adrian Rocca, CEO of Toronto-based real estate developer Fitzrovia —”a significant hit when margins are already tight.
“While we source most materials locally, major mechanical and electrical equipment comes from the U.S., meaning the impact would be immediate across the 12 purpose-built rental towers we currently have under construction,” he said in an online post. “That’s why we’re proactively sourcing cost-effective alternatives from Canadian and global suppliers to stay on track and on budget.”
The Minto Group, an Ottawa-based real estate company that builds homes in Canada and the U.S., said in an email that “we always strive to source cost-effective materials and, where possible, purchase from local suppliers.”
Home Depot CEO Ted Decker in a third quarter earnings call said the American multinational supplier of home renovation materials procures goods from Southeast Asia and China with more than half sourced in North America. “There certainly will be an impact, (from tariffs) but “we’ve been focused on diversifying, sourcing for several years and we’ll continue to assess that going forward.”
Lee said Canada’s countervailing tariffs as outlined so far, “while mostly not applied to construction goods (other than appliances, aluminum and steel). would increase costs of construction, further eroding affordability and access to housing for Canadians.”
Canada imports $3.5 billion in glass and glass products, $3.1 billion in major appliances, $2.2 billion in hardware, and about $1 billion in ceramic tile and related products, Lee said. Of those products, only appliances are being targeted by Canada in the first phase of tariffs.
But the second phase, slated to come into place 21 days after the first phase, currently includes steel and aluminum. Canada exports over $20 billion in steel and aluminum to the U.S. annually but also imports about $17 billion of the commodities.
“Tariffs will increase costs on both sides of the border,” Lee added, noting that the CHBA’s counterpart in the U.S., the National Association of Home Builders, is also advocating against tariffs on construction goods.
Governments can also help offset the impact that countervailing tariffs will inevitably have on housing affordability by removing the GST (and PST/HST) on new construction, as well as lowering development taxes at the municipal level, Lee said.