Canadian consumers and industries face difficult economic conditions, partly influenced by tariffs on steel imports. These tariffs, initially implemented to protect domestic producers and amplified by retaliatory measures following trade disputes, are having a significant impact on sectors like real estate. Increased input costs are exacerbating the existing housing affordability challenges and slowing down industry activity. This raises questions about whether the tariffs are effectively saving jobs or merely transferring economic strain to other areas.

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Protecting Jobs vs. Inflating Home Prices

Tariffs, which are essentially government-imposed taxes on imports, aim to bolster domestic industries by making foreign products more expensive and less competitive. In Canada, steel tariffs predate recent international trade tensions, initially justified by concerns that excess supply could depress prices and negatively impact domestic employment and profitability.

However, these tariffs have effectively acted as a hidden tax on new housing construction costs. Industry analysis suggests that steel tariffs can add 4-6% to the cost of building a home, with multi-family high-rise projects experiencing costs at the higher end of this range. Project delays, which can further inflate expenses, can also result.

While tariffs are intended to stimulate demand for locally produced steel, domestic steel is already the primary material source for most Canadian homebuilders. The cost of transportation and the need for specialized local steelworkers limit the substitutability of imported steel. Furthermore, specialized components that are either unavailable from domestic producers or are in short supply still require importation.

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Job Preservation vs. Potential Losses

Canada's steel industry directly employs approximately 23,000 individuals, making job preservation a key policy objective. It is estimated that tariff safeguards could potentially save around 5% of domestic steel industry jobs, which translates to roughly 1,150 positions. Including related industries could potentially double this number.

However, the actual impact on job preservation remains a subject of debate. For instance, when the U.S. imposed steel tariffs in 2018, some analysts estimated that manufacturing industries that used steel experienced a job loss five times greater than the number of jobs protected within the steel industry itself.

The assumption that lower steel prices automatically lead to job losses is also debatable. For example, hot-rolled coil (HRC) steel prices have increased significantly since 2019, while unionized steelworkers' wages have also risen during the same period. This suggests that the relationship between current steel prices and employment levels is not always direct.

Even if we accept the higher estimate of 2,300 jobs potentially saved by tariffs, the impact on related industries must be considered. Such job losses would disproportionately affect communities in Quebec and Ontario with high concentrations of steel industry employment. However, a broader analysis is needed to determine whether the benefits outweigh the negative impacts on other sectors.

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The Ripple Effect

Even before recent population growth constraints, new home sales in Canada were experiencing weakened demand. In the Greater Toronto Area, a region historically known for its robust real estate market, new home sales recently reached record lows. While builders have an adequate supply of homes, many prospective buyers are struggling with affordability.

Typically, prices would decrease to stimulate demand, but builders are facing challenges due to high input costs, exacerbated by steel tariffs.

Consider a conservative estimate of $30,000 per unit attributable to steel tariffs, representing approximately 4.3% of the benchmark home price. Assuming 200,000 new homes are built annually, this translates to roughly $6 billion in disposable income being diverted to cover tariff-related costs.

Industry experts estimate that $1 million in final domestic demand supports the creation of 6-10 jobs. Using a more conservative estimate of $150,000 per job, the $6 billion diversion could result in 40,000 fewer jobs in a single year. This figure is significantly higher than the number of jobs policymakers aim to protect through the tariffs.

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This analysis focuses solely on the impact on new home sales, without considering other industries or secondary effects. One notable consequence is the decline in GDP. For example, new home sales in the Greater Toronto Area have fallen 71% below the 10-year average, resulting in a $652 million reduction in spin-off economic activity.