CIX Capital comments on the potential impacts of Trump’s announced tariffs

Fulfilling his campaign promises, Donald Trump recently announced new tariffs on imported goods from various countries. These tariffs have become the center of economic debate and are already showing signs of impacting the financial markets. The so-called “tariff surge” by the president has raised concerns among economists about the possibility of a global trade war.

The first announced tariffs, which include a 25% increase on imports from Canada and Mexico and an additional 10% on Chinese goods, prompted swift responses from the Canadian and Mexican governments, leading to negotiations. Both North American neighbors managed to delay the application of these tariffs by 30 days, but Trump remains firm in his tariff policy, and the outcomes are uncertain.

On February 10, the U.S. president signed an order imposing a 25% tariff on steel and aluminum imports and revoked tax exemptions and quotas for major suppliers, including Canada, Mexico, and Brazil, effective March 12. Brazil is currently considering possible responses.

More recently, on February 13, Trump announced a reciprocal tariff plan aimed at “correcting imbalances in international trade and ensuring fairness,” intending to boost U.S. competitiveness, foster industry, and benefit American workers, according to a Fact Sheet published by the White House. The memorandum did not specify exact tariffs but highlighted the disparity between the 2.5% tariff on Brazilian ethanol imports to the U.S. and the 18% tariff on American ethanol imported by Brazil.

Trump claims that the U.S. has sufficient resources to meet domestic demand without relying on imports, while experts warn that the country lacks the necessary industrial capacity. Amid these uncertainties, tariffs used as a negotiation tool to address issues such as immigration, as claimed by the president, may be lifted in the short term. However, long-term tariffs could lead to more significant consequences.

Since this issue is evolving, policies and their impacts may change rapidly. CIX Capital analyzes potential developments, particularly regarding the real estate market based on currently available information.

Effects on the U.S. Market

According to experts, the new tariffs could accelerate inflation and slow economic growth in the U.S., prompting the Federal Reserve (Fed) to closely monitor the economic impact, especially regarding inflation control. Despite Trump’s claims that foreign countries will bear the costs, analyses suggest that these expenses will inevitably be passed on to consumers. Tariffs impact supply chains at multiple levels, leading Americans to face higher prices on durable and non-durable goods, including groceries, cars, electronics, gasoline, and real estate.

Another aspect to monitor is the capital markets’ response. So far, municipal bonds (munis) have shown little volatility due to the tariffs, but analysts warn that states more exposed to international trade, such as Texas, California, Michigan, and Illinois, may face specific challenges.

Impacts on the Real Estate Market

Interest Rates and Financing

For the U.S. real estate market, Trump’s tariff measures have a dual effect. In the short term, mortgage rates remain stable, with the 30-year fixed rate averaging around 6.95%. However, the potential for significant price increases in various consumer goods could prompt the Federal Reserve to adopt a more aggressive stance against inflation, leading to higher interest rates.

The housing market has already been grappling with high-interest rates and reduced affordability, contributing to the current housing crisis.

Source: Freddie Mac

Effects on Residential Construction

The rising import costs are expected to impact the construction sector, which is already struggling with high material costs and a shortage of skilled labor. Increased input prices will likely raise the cost of new housing, worsening the housing crisis.

A February 2 CNN Business article highlights the scale of these implications: the U.S. currently imports about 30% of its “softwood” lumber from Canada, with 70% of the lumber used in residential construction in 2023 coming from the same source. Additionally, 71% of lime and gypsum—key materials for drywall—are imported from Mexico. These materials are widely used in residential construction frameworks, roofs, and walling.

The report also notes that, according to the National Association of Home Builders (NAHB), rising material prices could increase construction costs by $3 billion to $4 billion. Historically, tariffs on lumber have negatively affected consumers more than they have benefited domestic producers. For example, the 2006 agreement between the U.S. and Canada reduced lumber imports, benefiting American producers by $1.6 billion but costing consumers $2.3 billion due to higher prices.

Beyond lumber and gypsum, the 25% tariff on steel and aluminum imports is expected to increase prices for items like garage doors, air conditioning units, and dumpsters.

While the president argues that these measures will stimulate domestic production, the reality is more complex. The lumber industry, for instance, faces challenges such as bureaucratic hurdles to opening new sawmills, environmental restrictions on logging, infrastructure needs for transportation, and a shortage of skilled labor.

Despite these challenges, there is some optimism that the government might ease regulations to support new housing production, potentially mitigating some of the tariffs’ impact on the construction market.

Property Prices and New Multifamily Projects

The multifamily housing market—one of the most resilient sectors in U.S. real estate—continues to grow but may feel the indirect effects of the tariffs over time. Increased production costs, combined with potential inflation, could reduce developers’ profit margins and affect project feasibility.

The duration of these tariffs and market reactions will be critical. If tariffs persist long-term, rising prices could lead to higher financing costs, making housing even less accessible.

Outlook and Key Factors to Watch

As the effects of these tariffs unfold, caution and adaptability are crucial. CIX Capital continues to monitor developments in the U.S. real estate market, focusing on factors such as:

• The Federal Reserve’s response to inflationary pressures and its interest rate policies;

• The impact of construction material prices on new developments;

• The response of states most exposed to international trade.

We will keep a close watch on these developments and their implications for the real estate sector.

Affordable Housing and CIX Capital

Since 2022, CIX Capital has been focusing on addressing the U.S. housing deficit by investing in the pre-development phase of social housing projects in California through the CIX ESG Affordable Housing Bond. Targeting the “workforce” housing segment, these projects benefit from the U.S. government’s Low-Income Housing Tax Credit (LIHTC) program, which grants tax credits to developers in exchange for reserving a portion of units at restricted rents for low-income families.

The program has financed 3.85 million housing units in the U.S., benefiting 9 million families. The projects comply with Title 24 Building Energy Efficiency Standards and/or earn additional certification through Greenpoint or LEED (Leadership in Energy and Environmental Design), which are benchmarks for sustainable construction.

To date, we have invested in 34 properties across 25 different cities in California.

References

ESTADÃO. Trump tariffs likely to raise prices for U.S. consumers. O Estado de S. Paulo, Feb 14, 2025. Available at: https://www.estadao.com.br/economia/tarifas-trump-precos-consumidores-americanos/. Accessed: Feb 14, 2025. CNN. Canada tariffs on wood and lumber could impact housing market.

CNN Business, Feb 2, 2025. Available at: https://edition.cnn.com/2025/02/02/economy/canada-tariffs-wood-lumber-housing/index.html. Accessed: Feb 14, 2025. G1. Trump talks about reciprocal tariffs on countries taxing U.S. goods. G1 Economia, Feb 13, 2025. Available at: https://g1.globo.com/economia/noticia/2025/02/13/trump-tarifas-reciprocas-aos-paises-que-cobram-taxas-dos-eua.ghtml. Accessed: Feb 14, 2025.

HOUSINGWIRE. Trump tariffs and price hikes: What homebuilders need to know. HousingWire, 2025. Available at: https://www.housingwire.com/articles/trump-tariffs-price-hikes-homebuilders/. Accessed: Feb 14, 2025.

MORNINGSTAR. Buying a house amid the trade war? Here’s what to expect from mortgage rates. Morningstar, Feb 3, 2025. Available at: https://www.morningstar.com/news/marketwatch/20250203474/buying-a-house-amid-the-trade-war-heres-what-to-expect-from-mortgage-rates. Accessed: Feb 14, 2025.

BOND BUYER. Tariff plans have little impact on muni market. Bond Buyer, 2025. Available at: https://www.bondbuyer.com/news/tariff-plans-have-little-impact-on-muni-market. Accessed: Feb 14, 2025.

WHITE HOUSE. Fact Sheet: President Donald J. Trump announces fair and reciprocal plan on trade. The White House, Feb 2025. Available at: https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-announces-fair-and-reciprocal-plan-on-trade/. Accessed: Feb 14, 2025.

FREDDIE MAC. U.S. Economy Remains Resilient with Strong Q3 Growth. Freddie Mac, Nov 26, 2024. Available at: https://www.freddiemac.com/research/forecast/20241126-us-economy-remains-resilient-with-strong-q3-growth. Accessed: Feb 19, 2025. BLOOMBERG. NMCMFR30 Index. Bloomberg. Available at: https://www.bloomberg.com. Accessed: Feb 19, 2025.