Tariffs and Taxes: One Year In

A look at the combined effects of the Tax Cuts and Jobs Act and tariffs
Norah Dick
May 3, 2019
COMMERCIAL, FABRICATION

The last two years have seen significant changes in tax legislation. In December 2017, President Donald Trump’s administration passed the Tax Cuts and Jobs Act (TCJA), legislation that was designed to provide tax relief for middle-income families, simplify the tax process for individual filers, increase economic growth and repatriate income from overseas, according to a statement from the White House.

A few months later, on March 8, 2018, President Trump imposed duties on steel and aluminum articles under Section 232 of the Trade Expansion Act, citing national security concerns. Most recently, the administration imposed tariffs on $200 billion of Chinese goods in September 2018, citing the country’s “numerous unfair policies and practices” with regards U.S. technology and intellectual property.

The tariffs on Chinese goods, which inlcudes float and fabricated glass products, went into effect at 10 percent, and were set to rise to 25 percent in January. However, administration halted the subsequent hike due to trade talks. President Trump renewed threats to increase tariffs to 25 percent on May 5. 

While the goals of both initiatives included economic growth, the combined impact of both policies created a complex effect on construction’s economic landscape, according to industry economists.

The Tax Cuts and Jobs Act
“The effect [of the tax cut] was less than a lot of people expected,” says Ken Simonson, chief economist, Associated General Contractors of America. “Tariffs interfered or countermanded a lot of the impact that might have been felt [from the TCJA].”

Kermit Baker, chief economist for the American Institute of Architects, says that the effect of the tax break largely depended on the state of the individual business at the time. “If you were going ahead with a major expansion plan, you would have benefitted from the tax cut,” he says.

Baker characterizes the overall economic benefit accrued by construction businesses from the TCJA as a windfall, one that was not likely to have increased investment or jobs. “I talked to very few in the industry that said, ‘This will make a permanent change in how we do business,’” says Baker. “It was more of a one-shot Christmas present. Companies gave it away as bonuses, used it to subsidize healthcare for employees, while public companies often used it to buy back their stock.

Simonson does point out that while the positive effects of the TCJA will not accumulate, a few potential benefits are still to be realized, including a potential boon for retailers. As reported in the Wall Street Journal, a technical error in the way the TCJA was drafted, if corrected, will allow restaurant owners and retailers the ability immediately deduct the costs of renovations, with the purpose of incentivizing repairs. Developers are also waiting for clarification on ‘opportunity zones,’ says Simonson, which could allow for generous tax breaks for development in designated neighborhoods.

Tariffs
As mentioned, the effects of tax legislation were further complicated by the imposition of tariffs. “[The effects of the TCJA and tariffs] likely offset each other this past year,” says Baker. “The folks that benefitted are different than the folks that suffered.”

Baker does point to tariffs as a reason for the increase in building material costs, with the producer price index for steel up by over 10 percent over the last year, with overall nonresidential construction costs having increased 4.3 percent, year-over-year.

Simonson underlines the cooling off of steel and aluminum PPIs in the most recent postings, and adds that the new exemption process may help further mitigate the cost of building materials. “Tariffs, across the board, have not been removed. Now companies have the option of filing for exemptions, which the administration is issuing, more and more,” he says.

Simonson notes that the next potential development in tariffs would be to increase the 10 percent tariffs on Chinese goods to 25 percent. “It’s uncertain whether we’ll see negotiations regarding these tariffs, or a strategic retreat from them,” says Simonson. President Trump delayed the increase to 25 percent on March 1, extending the deadline for the decision as trade talks continue with China. Trade talks between the U.S. and China resumed in Beijing on April 30. 

Norah Dick is assistant editor and researcher for Glass Magazine. Write her at ndick@glass.org.