Tariffs on imported building materials have caused healthcare providers to rethink their construction projects as they look to mitigate higher costs.
Tariffs add weight to healthcare construction
That's in addition to $50 billion of Chinese imports subject to tariffs implemented in August. A 25% levy on steel and 10% on aluminum imported from a handful of countries already kicked in earlier this year.
While healthcare construction projects haven't been delayed or canceled yet, the tariffs could have a material impact next year, according to Andrew Quirk, senior vice president and national director of the Skanska USA Healthcare Center of Excellence.
"This is going to start weighing on the marketplace soon if it is not resolved shortly," he said. "Clients understand that this an oncoming wave. It's starting to get peoples' attention."
Healthcare providers have been asking Skanska if they should go to the capital market, put in pre-emptive orders for building materials before tariffs increase next year, delay projects or alter designs to minimize costs.
Skanska is searching for alternative sources of materials that would allow providers to maintain the projects' design and scope.
Healthcare uses a significant amount of building materials like steel, concrete, glass and specialty finishes that come from outside the U.S., Quirk said. Building material costs account for anywhere from 30% to 70% of the total budget, he said.
"Steel has gone up 10% to 18% in some markets, which can significantly add to a project," he said.
This is yet another ball that healthcare providers have to juggle. They are already coping with implementing new electronic health record systems, drug shortages, lower reimbursement levels and maintaining aging infrastructure, along with a slew of other priorities. Additional construction costs could delay other investments, Quirk said.
Healthcare provider clients of architecture firm NBBJ have not yet seen a quantifiable increase in the cost of materials related to the tariffs, but people are talking about it and think it could have an impact in the future, the company said.
While the tariffs may add to construction costs, BJC HealthCare does not plan to delay any projects, the St. Louis-based health system said.
Adding tariffs to foreign goods was intended to be a job stimulus for U.S. manufacturers, and some have seen their revenue rise as companies source more domestic products. But since a U.S.-produced good is more expensive than overseas alternatives, other businesses have had to raise prices or lay off staff to accommodate the added expense.
Economists have long warned that engaging in tariff wars would be a net loss for the U.S. economy.
The amount of tariffs U.S. businesses paid in August increased by $1.4 billion, or 45%, compared to August 2017, according to new data from Tariffs Hurt the Heartland, a coalition of around 100 U.S. industry groups including the National Association of Chain Drug Stores and the Information Technology Industry Council.
Aluminum tariffs cost American companies more than $125 million in August alone, according to the coalition. Generic-drug manufacturers, for instance, have already taken a hit from steel and aluminum tariffs.
The current tariffs, notably the ones on lumber, steel and aluminum, have been pushing up construction costs, according to a report from real estate investment management company JLL.
On an unadjusted year-over-year basis, the following product prices increased in July: softwood lumber by 19.5%, plywood jumped 22.5%, steel mill products went up by 12.4% and aluminum mill shapes increased 17.8%. Inevitably, the construction pipeline will slow, JLL researchers said.
President Donald Trump has recently threatened to impose tariffs on all Chinese goods, amounting to another $276 billion in Chinese products, which would "begin to have serious negative systematic consequences for the economy and industrial market," according to the report.
The silver lining, Quirk said, is that it's bringing contractors, architects and their clients to the table sooner. They are having conversations that could add value to projects and ultimately save providers money down the road, he said.
"For the healthcare sector to turn to its design and construction partners now is more important than ever," Quirk said.
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