Trump's Trade War Is Redrawing The Battle Lines In Negotiations

Jeff Klotz thought he was being smart when he ordered and paid for roughly $200K worth of countertops from China to stockpile before President Donald Trump’s tariffs went into effect. 

That was before he received a call from the vendor saying the ongoing trade war had bumped up the price by 20%. 

“They’re in manufacturing, supposedly, but they won’t honor the commitment if we don’t pay the price increase,” he said.

Klotz, a developer and the founder of a consortium of 13 real estate companies that all roll up to The Klotz Group of Cos., said he doesn’t have any option but to pay.

“We’ve committed to our client with a contract that we can’t change,” Klotz said. “Someone’s got to eat the price.”

Stable materials pricing has been the most immediate casualty in the White House’s high-stakes global trade war. But the cumulative and lasting effects of the on-again, off-again tariffs — along with their own murky future — stretch beyond the cost of countertops. They are already impacting project timelines, site selection and investment and leasing decisions, locking nearly every aspect of CRE in analysis paralysis. 

“Everybody was in this mad race to guarantee pricing, and then we got hit with tariffs,” Klotz said. “It hasn't stopped or killed any projects for us yet, but it will.”

It has, however, led some major manufacturers to shift gears.

International Recycling Group scrapped plans for a $300M recycling plant in Erie, Pennsylvania, a day after new tariffs were announced that brought “expectations of substantially higher project development costs than anticipated,” according to CEO Mitch Hecht.

Stellantis temporarily laid off 900 workers at five U.S. facilities as it navigates the shifting trade regime. It also shut down a car assembly plant in Mexico for two weeks, and its factory in Ontario, which employs some 4,500 Canadians, has been shuttered this month. 

Honda announced in March that it would produce its next-generation Civic in the United States instead of Mexico in the face of tariffs. The carmaker is also considering moving its electric Civic production from Japan to Indiana. 

Eli Lilly and Co. said in February that it would spend $27B on four new U.S. manufacturing sites, and the drugmaker promised last week that a weight-loss pill that has shown promising results in clinical trials would be produced in the U.S. if it is rolled out to market. 

A Pandemic Flashback For Pricing

For developers and businesses with projects in progress, the tariff push from the White House is reminiscent of the early days of the pandemic, when supply chain disruptions brought rapid price increases for both raw materials and finished products. 

“I've got a stack of letters that are almost identical to the letters I started receiving during the pandemic,” said Klotz, whose businesses own more than 10,000 apartments nationwide and have another 6,100 units under development.

The letters come in three vintages, he said. Some suppliers are raising prices, others are warning that hikes are coming, and in some cases, vendors are writing to say they can’t honor an order that has already been paid for unless Klotz pays a new price.

Suppliers themselves are struggling to guarantee prices in today’s marketplace, in part because tariffs are levied on goods when they arrive at their destination country, not when they are shipped. 

“Some are just tacking on 10%, some of them are tacking on 30% — they all have sort of a weird concept on how they're passing some of the costs along to the consumer,” he said.  

Contracts are being renegotiated for projects of all scopes and sizes. A price quote that used to be good for 30 days can now last as little as 24 hours, said Les Hiscoe, CEO of Shawmut Design and Construction. 

Shawmut, a Boston-based company with more than 1,000 employees, can use its scale to help offset cost increases, but the price volatility especially stings small businesses operating on tight budgets with limited access, Hiscoe said. 

Material cost escalations and who is going to pay for them have always been key negotiating points for companies at every level of the supply chain. But since tariffs weren’t a sticking point in the past, they had until recently largely been absent from deal terms. 

“Clients are on high alert,” Hiscoe said. “They don’t want to see some of that language added to their contracts.”

While the scope of the pricing battle is most evident for huge companies, individuals haven’t been spared. Condo unit owners are doggedly fighting in Florida, where changes to a state law are leaving them with massive one-time bills for extensive repairs to ensure their building is structurally sound. 

The law, passed in the wake of the 2021 Champlain Towers South condo collapse that killed 98 people in Surfside, is meant to force condo associations into completing repairs. But many boards are continuing the longstanding practice of delaying costly repairs as long as possible in the face of the high — and still rising — costs. 

While construction costs were already high in the region, the added cost and confusion from Trump’s trade policy has made it even more difficult to get condo owners to sign off on repairs, said Carolina Sheir, a partner at Eisinger Law who works with homeowners associations. 

Contract negotiation timelines have been squeezed by rapidly shifting prices, with contractors pressuring condo owners to sign contracts to lock in pricing. It is becoming increasingly common for contractors to only be willing to offer a price range rather than a specific dollar amount. 

“The contractor wants absolutely no responsibility, obviously, for whatever the increase is going to be,” Sheir said. 

There is hope in some corners of the economy that steep tariffs could be short-lived as Trump leverages the taxes to cut deals with trading partners. If that were to happen, prices could presumably come down.

“I had one of my savvier [condo] board members make that comment during a contract negotiation, and the contractor laughed,” Sheir said. “It's very hard to pin someone down and get them to say, ‘Well, if I end up getting a savings, I'm going to pass it on to you.’”

'The Analysts Are Killing Us'

The first-order effect of tariffs are making it harder to build projects or do repairs, but their knock-on impacts are being felt across the gamut of real estate sectors. 

BBX Capital, an investment firm with multifamily and industrial investments and ownership of the candy company It’Sugar, cited a weak market outlook this month when it announced that it was halting new investment and looking to sell assets to shore up its balance sheet. 

“We’re not smart enough to forecast where the market is going, but we are smart enough to know when we get an uneasy feeling in the economy,” BBX Capital Chairman Alan Levan told Bisnow this month.

The Fort Lauderdale-based firm lost $64M in 2024 and $21M in 2023.

Economic queasiness is being exacerbated by the disorganized rollout of the president’s tariff regime, disrupting a long-awaited rebound for commercial real estate. Hundreds of billions of dollars have been raised in the last two years for acquisitions. 

Transaction volume is forecast to pick up this year, with global brokerage firms projecting that transaction volume will accelerate in the back half of 2025 and into 2026. Many fund managers are desperate to deploy cash, but the profound uncertainty percolating through markets has once again caused decision-makers to put deals on ice. 

“They're all saying the same thing: We're getting anxious, we're itching, we're dying to do something. We just can't get the board or the committees to let us do anything because of uncertainty,” Klotz said. “The analysts are killing us.”

The hesitancy extends beyond sales and into leasing, said Greg Kraut, CEO of KPG Funds. 

His firm has found success in the competitive New York City office market buying old but architecturally significant buildings, upgrading them into luxury space and bringing in new tenants. 

The limited supply of high-quality office space meant Kraut has never had trouble finding tenants, but he said today’s deals are taking longer to execute as the well-heeled boutique firms he serves waffle. He said he recently lost a large deal after the foreign-owned retailer looking at his property opted to wait to plant a U.S. flag because of the trade war.

Industrial REIT Prologis reported in its earnings call last week that its pace of leasing slowed in the first quarter because of tariffs and it would cut up to $1B from its planned development pipeline this year.

While rising costs from tariffs present an immediate challenge, the lack of clear policy or direction is ultimately more damaging to overall economic activity. Consumer sentiment is at its second-lowest level since 1952. J.P. Morgan Research forecasts that a recession is more likely than not to happen this year.

Five Below, a retailer in the discount space that has fueled the sector’s growth, told vendors this month to turn away shipping containers arriving at U.S. ports from China rather than pay the steep tariffs being imposed by the Trump administration. 

“I don't think anybody has a clue of what's going to happen. I don't think the president knows. I don't think the chairman of the Fed knows,” Kraut said. “If you don’t know, then you can’t plan. If you can’t plan, then you’re not doing a deal.”

The lack of insight into where policy is headed also gives tenants, especially industrial users, an added edge when leases come up for renewal, said Tom Viscount, Avison Young’s top industrial broker in South Florida. 

Industrial developers chased pandemic-era demand for distribution space with a boom in new construction that is delivering into today’s much softer market, including in top-performing regions.

At the height of the pandemic, limited availability and landlords' pricing power made tenants quick to sign leases. But now, in a market where warehouse space is abundant and fewer large leases are being signed, some occupiers are waiting to see if weak demand from international occupiers will tilt lease negotiations in their favor. 

Emotions for the tenants Viscount represents range from elation to dismay. A Brazilian tile manufacturer with U.S. warehouse space is ecstatic because its products can now compete with Chinese suppliers on price, despite having been hit with its own tariffs. 

On the other side of the spectrum, Viscount is working with a supplements manufacturer that sources all of its raw materials from China. It made a deal to produce supplements for a fixed price and ordered the compounds before the 125% tariffs went into effect. It will have to pay the tax once the freight arrives by boat. 

“They wish that ship would just sink,” Viscount said. “They're going to lose tons of money on those containers that are coming over here.”