The Potential Costs of Protectionism: How Business will get Creative

Only a few months ago, the world economy was ticking along normally, showing signs of growth in several key industries, such as energy and manufacturing, with all major global contributors in North America, Europe, and Asia working together. But in the course of a few short months, the unified workings of global trade have been called into question.

In March, the United States announced its intention to impose tariffs on its allies and rivals alike, citing national security concerns, growing US trade deficits, and the desire to encourage manufacturing and buying of American-made products. Among other US-lead protectionist initiatives, an import tariff of 25 percent on steel and 10 percent on aluminum has been implemented. In response, Canada has imposed $16.6 billion in retaliatory tariffs on US goods, while Mexico, China, and the EU have adopted their own set trade restrictions. As the conflict continues and heightens, border trade has slowed and prices for key input items, such as imported metals, are rising.

History has proven that trade wars are costly and can heighten risks associated with border hostility. It was, after all, a trade war that intensified the 1930’s Depression. Tension and heightened antagonism, combined with a lack of trust between nations, has economists theorizing that this current era of protectionism poses an existential risk to global trade, though I would argue that a Depression level of destabilization won’t occur. Nearly ninety years hence, our economy and our way of life is fundamentally different from the 1930s. Communication is instantaneous; business and economic knowledge is more robust; global commerce and capital markets are inextricably linked. I believe that protectionist import duties, while painful, will cause trade diversions that will stimulate Canadian industry to diversify markets and get even more creative in how it conducts business. With every challenge, after all, comes opportunity.

What does this mean for Canada?

Much has been written concerning the potential impacts to Canadian steel, aluminum, and other export-focused industries in recent months. The Canadian steel industry, for example, currently generates around $16 billion in goods per annum, and directly employs about 30,000 people. Roughly 45 percent of our steel goes to the US, where it is used in many industries such as the automotive sector, aerospace, heavy equipment, energy, and construction, to name only a few. And while the tariffs are in part intended to support US domestic manufacturing and production of steel and related products, the reality is that the US steel manufacturing capacity is unable to meet its country’s own demand at this time. As such, the costs for raw materials, such as steel and aluminum, have recently increased.

What does this mean for Architecture and Construction?

Several industries on both sides of the Canada-US border will be affected by import duties, but only a few stand to feel the pain more than residential and commercial construction. The Associated General Contractors of America has noted that the costs of all goods used in construction has increased 8.8 percent year-over-year from May 2017 to May 2018. Steel and aluminum is a significant portion of this cost. If it costs more to build something – a museum, a skyscraper, a library – it is the decorative and aesthetic aspects of that building that may be value engineered out for cheaper, more pedestrian products. The current trend of designing spaces with occupant wellness and experience in mind could be at risk. What we do not want to see is a resurgence of brutalist architecture, 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 and 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.

What does this mean for Architectural Decorative Glass?

Some decorative glass products use steel and aluminum either fastened to the glass itself or used as part of the framing system. Brackets used to hold the glass are often sourced from US manufacturers, though given the hefty price increase of that product due to tariffs – one that has the potential to be shipped back to the US and levied a second time – material supplies will need to be sourced elsewhere. This tariff double-whammy quickly eats into margins, making it impossible to conduct business in the same way. While I am not in favor of protectionism and the potential changes we see before us to the global trading system, I do believe business creativity will flourish. The way we do business will evolve and, ultimately, improve, becoming even more competitive and efficient than ever before.