US Tax on Imports and Real Estate

Dated: 06/13/2018

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US tax on imports and Real Estate

If you’ve read the news in the last couple of weeks, you might have noticed the whole Donald Trump tariffs shebang. Let’s try to explain it in a simple and quick way because the “why”s behind it are not really what we’re interested in discussing, but the “what now?”s of it.

No country can produce everything internally.  Some goods – like some types of fruits – just won’t be able to grow on our soil and weather; other goods could but we wouldn’t be able to produce it sufficiently versus how much we consume it. When there’s something in demand that we can’t produce enough here, we import from somewhere else – like avocados from Mexico – and when we have something we produce more than the internal demand, we export to other countries. Following so far? Okay, so, government has the right to put tariffs or taxes on international trades, and, because this trade goes both ways, it had, in the past, elected to lift the import tax so that the American people could have access to those imported goods our internal industry wasn’t able to supply and, likewise, some other countries to which we would export, would lift their import tax as well, incentivizing, this way, the free trade market. But the Donald Trump tax point-of-view departs from this: his administration has instated the import tax on specific imported goods with a major opponent at sight: China. The first Trump tax plan for imported goods was to charge tariffs on Solar Panels and Washing Machines, both majorly produced at the big red Asian country, and now, the newest US tax on imports concern taxing international trade of steel and aluminum.

Interestingly, as you can probably see for yourself, all of those US tax on imports have repercussions on the real estate industry. And that’s what we aim to discuss in this post: until all of this is settled – it’s a trade war forming; there’s a lot of water to flow under this bridge – there are a few things you should be on the lookout for.

The US tax on imports imposed to washing machines is the least harmful to Real Estate. What bad can come from it? We have American brands that could satisfy the demand for new machines – although much slower and with a problematic price gauge due to lack of competition – and you always have Laundromat places to take care of your dirty clothes.

Now, the Solar Panels import tax is more problematic to the Real Estate market, because it has the ability to impact its landscape as a whole. It’s a known fact that this administration is a big fan of coal and other outdated sources of energy and it’s also known that China is one of the main leaders in green renewable energy, so this part of the Trump Tax plan on imported goods kills two bird with one stone: in a way, it hurts China, one of our main competitors, and helps the coal industry. Since, the real estate industry has been shifting big to solar energy in the last decade, with solar panels becoming a commodity to new high-end houses, the US tax on imports can slow the trend down or even stop it altogether. What will happen is that existing houses with solar panels will become even more valuable because of the presence of it; that’s a given. But regarding leases and the solar panel trap; we don’t know. The solar panel industry might cross their arms and say they shouldn’t have to adapt to this Trump tax plan on imported goods, but they can also react positively and lift their leasing rules to make it easier for the home seller to transport the solar panel to the new home. One thing that is not likely to happen is the mortgage lender easing its regulation to loan the money for the lease. And it shouldn’t. If they do, chances are the rest of the economy goes down with it, in case homeowners start to default: and then it’s 2008 all over again. Financial responsibility regarding loans is an important pillar our economy must be on the lookout for.

But where the going gets tough in Real estate is regarding the US Tax on imports like steel and aluminum.

Steel is a raw material of high demand in real estate. From the small use in faucets and door knobs to the larger use of steel in plumbing pipes and overall construction infrastructure of roads and buildings; steel is a big part of real estate construction. At first, the import tax on steel will slow down construction because of the high prices building a new house will amount to. Later, it will de-motivate the construction industry to work with steel (and aluminum; which also is used a lot, especially in window framing) in construction, figuring out a way to substitute them with other cheaper raw materials. People thinking of doing some home improvement to Increase Your Home Value: bathroom and kitchen updates, the kings of quickly adding value to a home, are not a good idea anymore; better to invest in building a She Shed made mainly of wood, adding Smart Home Devices or coming up with Landscaping Ideas to Improve Curb Appeal of your house.

In a larger sense, the possible damage to real estate imposed by this Trump tax plan is even bigger. It can impact the whole economical eco-system that fuels real estate. Think about it: if the import on steel and aluminum from some of our top importers like Mexico and Canada gets drastically reduced, the hundreds of truckers that used to transport these materials from there to here will have a major occupation shift. Some will manage to maintain the same lifestyle, driving the same routes, transporting another type of freight. Others will, hopefully, get other jobs in other areas, settling down someplace close to their new permanent location. And some will, sadly, just go unemployed. In the two latter cases, the whole dynamic of real estate supply and demand gets shifted. Plus; if it becomes a trade war, some of these countries might retaliate and impose taxes on some of our previously not-taxed imported goods, hurting our ability to compete and expand our profits. Imagine if cement is next on the US tax on imports’ list? What would that do the real estate industry?

So, if you are right now doing any kind of home improvement that involves aluminum or steel, it is possible that you will have the misfortune of hearing your contractor say the proposed budget has to change due to a spike in price that makes it impossible for him to build/repair whatever it is that you are doing. If you can, maybe put this plan on hold, wait to see the next chapters of this war unfold. It could get better, it could get worse, but one thing we know for sure is that it won’t stay the same. Change is coming, so be prepared to know what your role in all of this is, and act on it. Good luck!

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