The escalating trade wars are weighing on healthcare construction.
New or growing U.S. tariffs on goods produced outside the country were a major driver of an “exponential” increase in material costs over the past year, particularly metals, construction and design executives said in conversations and responses to the 2019 Modern Healthcare Construction and Design Survey.
In some cases, they have had to delay projects, companies relayed through the survey of 110 construction management, architecture, development, design and general contracting firms.
The price of steel, for instance, has gone up 10% to 18% in some markets over the past year, which can significantly add to a project’s costs, said Andrew Quirk, national director of Skanska USA’s Healthcare Center of Excellence.
Healthcare providers have been asking the construction firm if they should raise money in the capital markets, put in preemptive orders for building materials before tariffs increase, delay projects or alter designs to minimize costs, Quirk said. Nearly half of the respondents said supply costs were the biggest challenge, followed by regulatory barriers and less demand due to providers’ financial constraints.
“Tariffs are beginning to weigh on the marketplace,” he said.
The escalation of construction supply costs is yet another ball that healthcare providers have to juggle as they endure other costly changes, such as implementing new electronic health record systems; dealing with drug shortages and lower reimbursement levels; and maintaining aging infrastructure. Additional construction costs could delay other investments, Quirk said.
President Donald Trump continues to use tariffs as a negotiating tactic, as he tries to get leverage in trade talks. He claims that tariffs will bolster the U.S. economy, although that doesn’t appear to be the case for the hospital industry. Trump most recently took closer aim at China. After trade talks ended without a deal, on May 10 the U.S. raised tariffs on about $200 billion in Chinese products from 10% to 25%. The administration also proposed new levies on an additional $300 billion worth of products while Trump pledged to expand tariffs of 25% to virtually everything imported from China.
In addition, the administration subjected $50 billion of Chinese imports to 25% tariffs last August. A 25% levy on steel and 10% on aluminum imported from a number of countries already kicked in early last year.
Respondents to Modern Healthcare’s survey cited as much as a 30% increase in project costs over the past year, but most were in the range of 3% to 6%.