Since retaking office, Donald Trump has been wielding his favoured weapon of disruption – tariffs. Whether they are imposed or not, the potential impacts for UK architects and construction firms are wide-ranging and unpredictable
In a press briefing on April 23, 2020, Donald Trump floated the idea that injecting disinfectant might help in the fight against the Covid virus. He claimed afterwards that it was a sarcastic question aimed at journalists in the room.
Debating whether he was being a joker or just a fool misses the key point. What is relevant is that the question, serious or sarcastic, was unsettling.
Key to Trump's political power are his capacity to throw people off balance, and his willingness to break conventions. Importantly too, his approach taps into the fad for disrupting organisations and practices deemed resistant to change.
Within days of retaking office this January, he was brandishing his favoured weapon of disruption, tariffs. In doing, so he threatens to reshape the established supply chains that have been formed over decades by steady economic globalisation.
Given the political and economic reach of the United States, this approach has serious implications for us all, whether Trump imposes tariffs or not. The impacts will stretch to construction firms and architects in the UK, whether they work within the UK or are among the growing numbers working on projects abroad.
The scale of possible disruption is unknowable, but the potential impacts are wide ranging as well as unpredictable. The key concerns for the wider construction sector are weaker economic growth, inflation in the price of construction materials, and potentially significant and wide-ranging challenges for architects and other professionals working on overseas projects, if Trump turns his attention to international trade in services.
Just the threat of trade tariffs has costs
Even if tariffs are not enforced, the uncertainty he is creating comes with an economic cost – a lower appetite for investment, reduced consumer spending, greater volatility in financial markets, slower economic growth, higher interest rates, and delayed decision making. None of these help the construction sector.
The effects are already being felt. On 5 February, the Bank of England Monetary Policy Committee discussed the announcements on trade tariffs. The minutes noted that 'the ultimate impact would depend on the final composition of policies', adding that 'nevertheless, there had already been an increase in economic uncertainty globally and a pickup in financial market volatility'.
Clearly, there is too little detail as yet to measure the likely impacts of Trump’s actions. But even the disquiet already generated by his threats will change how firms behave. Many will be encouraged to onshore or reorganise their supply chains to reduce potential risks.
If this sabre-rattling approach to global diplomacy and trade escalates, it could severely impact most world economies. That would dampen growth in the UK and in turn reduce investment in the built environment, particularly speculative developments.
Market volatility and uncertainty creates inflationary pressure as the risks they pose are priced into the cost of borrowing and into transactions. This puts upward pressure on interest rates. A weaker economy and higher underlying interest rates than otherwise expected would create a noxious cocktail dulling the enthusiasm of developers, and to some extent governments, to press the start button on construction projects.
Furthermore, there are likely to be direct impacts of any tariffs and trade restrictions imposed by the US. These could create market turbulence within the global supply chains for the construction sector.
This would likely lead to supply challenges and price rises for materials, the most immediate concern. The impact of spikes in prices for construction materials created by the Covid pandemic is still being felt by construction firms in the UK and abroad. Many firms are still counting their losses, particularly smaller companies unable to shelter themselves through hedging or contractual arrangements that take account of price hikes.
For architects in their day-to-day work, disruption in supply chains could become troublesome and time consuming, for instance with an increased likelihood of specification changes cause by erratic availability or pricing of products.
The supply of construction materials used in the UK is very exposed to changes in international markets, because so much – about a third – is imported. In cash terms materials account for about 30% of GB construction output, with imports accounting for about 10%.
GB construction output was about £220 billion in 2023, with the UK importing about £22.7 billion of construction materials. We exported just £8.5 billion of construction materials, so are net importers with an annual trade deficit of £14 billion.
This means we not only need overseas materials for choice and variety, but also in large quantities because we don’t produce enough to meet our needs. Chart 1 highlights how dependent the UK is on imports and how the trade deficit has grown over recent decades as home production has fallen relative to the demand.
Even if Trump goes light on the UK with threats of tariffs, UK construction remains exposed to what happens in overseas markets. Volatility and uncertainty over prices and availability in the global markets, particularly in Europe, has significant implications for the UK supply of construction materials.
How things will play out is unknowable. This is to be expected. Trump’s approach, deliberately or not, leaves everyone guessing.
But, as the Bank of England MPC statement above shows, substantive change isn’t needed to create market turbulence. This can quickly lead to inflationary pressures as potential risks are priced in.
Moreover, turbulence in construction materials supply chains, which are highly integrated, particularly across Europe, adds doubt and therefore risks to the process of specification and product selection. This in turn adds friction and ultimately reduces productivity within design and construction teams as decision making becomes more complicated.
Architectural services' trade surplus carries risks
That Trump has so far paid less attention to trade in services is a relief for the UK. It relies heavily on exporting services to help balance its large trade deficit in goods. But the threat remains that he might seek to rebalance global trade in services in favour of the US.
Services trade is significantly more complex than trade in goods. Services don’t cross borders as physical items, so are harder to measure and assess. This is particularly true in a digital age where multinational firms shift information, which has value, across borders every day, within their own company and with others.
Furthermore, there are various modes of services exports and imports. For instance, foreign students studying in the UK generate an export. Services might be supplied by a local offshoot of a UK company, or by a person working abroad. These are on top of the more obvious mode of providing a service directly from one nation to another.
Global businesses often realise their profits in low tax nations rather than in the high tax nations in a way that doesn’t reflect which nation benefits from their services. This distorts the underlying picture of international trade in services. It also creates discontent and international organisations, such as OECD, argue for fairer solutions.
Trump has a history of seizing upon discontent and seeking to suggest solutions, normally in a form that satisfies his interest or political base. His attention may drift towards international trade in services. There is no telling whether this might be helpful or harmful to the UK. But it could be exceptionally impactful.
If the effects were negative this could have huge implications for the architectural community in the UK. London, in particular, has become a global hub and home to many multinational firms of professionals that advise on and help create and maintain the built environment. From a relatively low base two decades ago, architectural services exports reached £1.3 billion in 2023. The US is, according to UK trade statistics, a big buyer of UK architectural talent, as are the Middle East and China.
The large trade surplus in architectural services, as in many other related sectors, provides large numbers of jobs in the UK that would not otherwise be here. London has become a powerhouse for built environment professionals operating across the globe. Chart 2 illustrates the extraordinary growth of UK exports of architectural services over the past two decades.
Given his unpredictability and capriciousness, it remains unanswered whether Trump will turn his attention more aggressively towards trade in services. What’s more, it is not certain if he did that it would be with serious intent or simply as a power play to extract other concessions from the UK or other nations.
Understandably, there is little sign yet of any panic within the construction sector over the possible outcomes. But recent moves on tariffs are clearly on the industry’s radar.
'At this early stage, we don’t know whether they will just be used as a negotiating tactic to get a few quick wins or whether they will be something more permanent,' says Professor Noble Francis, economics director at the Construction Products Association.
'However, clearly, the spectre of tariffs is enough to push the issue higher on firms’ risk registers,' he adds. 'Initially, the US moves on tariffs are likely to focus on Mexico and Canada, then China and the EU, before it directly affects the UK, but the indirect impacts could have a significant effect on global supply chains and economic growth.'
This comment from Francis was made before Trump’s threat, on 9 February, of 25 per cent tariffs on steel and aluminium. If imposed and sustained, these tariffs would significantly disrupt the global market for steel and aluminium. Both are key materials for construction.
Trump’s latest comments might stoke the fire surrounding tariffs, but they fit the general pattern of his approach. It is worth noting that he imposed similar tariffs on steel and aluminium coming from Canada and Mexico during his first administration. This led to a deal that saw them lifted.
Given the inbuilt ambiguity in Trump’s approach to politics, the best advice for architects and construction more widely is probably to stay alert and avoid being distracted. As the cliché widely used by football managers goes: 'Focus on the things you can control.' This doesn’t mean turning a deaf ear to the noise, bluster, and rumour that now surrounds much global politics.
One thing is clear, we are in living through a period of significant volatility and growing uncertainty. There is an increasing need for heightened vigilance and keeping a close eye on potential threats as they emerge. The wider problem for construction activity is that this will encourage derisking. This is not necessarily helpful for the sector, which by its nature involves risk.