Protectionism vs. globalization: How will increasing trade barriers affect A/E/C?

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Pascal Kirchmair, CC BY-SA 3.0 , via Wikimedia Commons
Pascal Kirchmair, CC BY-SA 3.0 , via Wikimedia Commons

Editor’s note: Ontario Construction Report publisher Mark Buckshon wrote the following article for the Society for Marketing Professional Services (SMPS) Marketer Magazine. The story appears in its December 2021 issue.            

By Mark Buckshon

Few issues are as perennial as the push and pull between globalization and protectionism.  Should procurement be subject to “Buy American” restrictions, or can the best prices and highest quality be achieved through international sourcing, especially for specialized services and products?

These challenges have been magnified in recent years. Populist political movements, coupled with the pandemic-related supply crisis, have increased protectionist pressures, exemplified by Brexit in the United Kingdom and Buy America policies in the anticipated bi-partisan, trillion-dollar U.S. federal infrastructure program.

Yet conversations with A/E/C leaders in the U.S. and globally indicate that most architects, engineers, and contractors wishing to do business internationally aren’t experiencing serious problems navigating protectionist trends. However, there are challenges with building materials and supplies.   Inflationary cost increases could indirectly result in a decline in quality and beauty in design, as owners implement value engineering to overcome projected budget shortfalls.

Implications for services

“Current protectionist challenges apply mainly to goods rather than professional services,” says Richard Nelson, managing director of Abyss Global, a U.K.-based management consultancy. He adds that international business arrangements among architects, engineers, and other professional services have always been constrained by local professional registration requirements, and these barriers remain in place.

Solutions include subcontracting, partnering with local organizations, or opening branch offices in relevant jurisdictions. The pandemic has made it easier for specialists to provide support and collaboration remotely.

“It’s the old adage, ‘Think globally, act locally,’” Nelson explains. “Clients still want global expertise, but some will just prefer it closer to home, or at least the perception that they are getting it closer to home.”

He notes that  the pandemic has opened up opportunities for some services firms that work globally.  Clients realized during the lockdowns that, if they could only work remotely with their service providers, it didn’t matter whether they were down the street or halfway around the world.

“When it comes to larger and longer-term commitments, the best solution is to be prepared to put boots on the ground in the markets that you want to serve,” Nelson says. “Usually that will solve the issue of access because, then you’re following the rules of that country or locality.”

Often designers, engineers, and consultants start softly with their international initiatives by working in partnership with their own clients planning international projects, notes Nelson. In these situations, “you’re a private advisor to them, and you don’t have to worry about setting up locally because they’re paying you back in your own jurisdiction.”

Certainly, as well, specialized expertise and relationships transcend trade restrictions. “Protectionism has always been there, but we aren’t seeing it increase,” says Mark Nettleton, joint managing director of PJA, a transport, engineering, and placemaking consultancy based in Birmingham, UK. “As a niche firm, we don’t bid for work unless we have a relationship, or a right to win.”

“Clients that know us personally, understand how we work, and have our assurance of a high level of service, they will make a contract happen,” Nettleton explains. “Alternatively, clients see we have the right solution to solve their problem and find a procurement route that avoids a ‘race to the bottom’ bidding war with local firms that are less equipped.”

When you look even further afield, to businesses and practices working internationally, but based neither in the U.S. nor the U.K., protectionism anxieties decline even more in significance.

Greg Karpinski, chief operating officer of KEO International Consultants, a multi-disciplinary consultancy with offices in several countries in the Middle East and Portugal, says directly: “We are not involved in manufacturing, trading of goods, or other industries that are occasionally subject to protectionism measures, such as import tariffs. We have not seen a rise in protectionism or protectionist measures that would impact the real estate markets of the Middle East, and even if we did, it would not have any impact on our business operations,” he expands.

Implications for goods

That said, what about the “goods” side of the A/E/C sector—namely building materials? Here the protectionist challenges are much more significant and immediate.

“July (2021) was the sixth-straight month of double-digit price increases for construction inputs,” said Ken Simonson, chief economist for the Associated General Contractors (AGC) of America. “In addition, lead times to produce or deliver many items keep lengthening. Many reports since the government collected this price data in mid-July show the trend will continue, at a minimum and likely beyond, unless tariffs and quotas are removed.”

Contractors—especially those working on fixed-price, long-term projects that haven’t included price escalation clauses—are facing a squeeze. The producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—rose 4.4% over the past 12 months, the AGC reports. That is a small fraction of the 25.6% increase in the prices that producers and service providers such as distributors and transportation firms charged for construction inputs, Simonson explains.

He notes, “Inflation has caused producer prices for steel mill products to more than double (108.6%) from July 2020 to July 2021. Even with a more recent retreat in lumber prices, they still have increased by 58.6%, while copper and brass mill shapes increased 49% and the index for aluminum mill shapes increased 33.25%.”

Cathie Saroka, president and CEO of Goldray Glass in Calgary, Canada, suggests that she doesn’t think the rising trend towards protectionism will be as severe as the trade wars that lead to the Great Depression in the 1930s.

“Communication is instantaneous; business and economic knowledge is more robust; global commerce and capital markets are inextricably linked,” she wrote in a LinkedIn posting.

However, Saroka writes that there could be significant costs and impacts on A/E/C design quality if trade barriers and tariffs cause materials price inflation to get out of control. “The current trend of designing spaces with occupancy wellness and experience in mind could be at risk. What we do not want to see is a resurgence of brutalist architect, something we haven’t seen since the 1970s.”

“In this period, the high cost of raw materials steered investment toward utilitarian, fortress-like buildings, leaving less room for modern architectural sophistication and stunning public art. This, to my mind, is the extreme. Yet there is no misconstruing what could be at stake here: art, beauty and architecture that speaks to and represents our humanity.”

©Marketer, The Journal of the Society for Marketing Professional Services, December 2021,www.smps.org

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