President Donald Trump's executive order to impose tariffs on goods imported into the United States from Canada, Mexico and China have stoked fears of a trade war that could have implications for real estate across North America.

A 25% tariff on goods imported from Mexico and Canada and a 10% charge on Chinese products to fight the flow of fentanyl across the U.S. border were set to take effect Tuesday. Trump acknowledged in a social media post that Americans may feel "some pain" as the new charges affect the interlocked economies of the North American countries that have had free-trade agreements for decades.

Canadian Prime Minister Justin Trudeau on Saturday said his country would respond by imposing 25% tariffs on more than $100 billion of U.S. goods, while Mexican President Claudia Sheinbaum and China's Commerce Ministry also threatened retaliation for the new tariffs.

Economists say a resulting protracted trade war could drive up inflation as costs rise for groceries and other goods as well as lumber, steel and other construction materials supplied by Canada, Mexico and China that developers need to build housing and commercial projects. The National Association of Home Builders said in a Jan. 31 letter to Trump that the tariffs on Canada and Mexico could further drive up U.S. housing costs by slowing residential construction.

Some analysts say that demand for logistics and other industrial properties could rise as companies respond to tariffs by building more facilities to manufacture such goods as computer semiconductors in or near the United States. Most U.S. logistics real estate is located close to consumers, with warehouse demand growth “driven by the rise of e-commerce, supply chain modernization and consumption patterns,” Prologis, the world’s largest industrial real estate owner, said in a recent study of potential tariff impacts.

“We expect these shifts will largely continue under additional tariffs, albeit with near-term uncertainty as policies are firmed up,” according to the Prologis report.

A monthly indicator that is closely watched by the Federal Reserve showed inflation continuing to slow in December, with prices rising 2.6% on an annual basis, the Commerce Department reported.

The latest annual figure was up from 2.4% in November but in line with analyst expectations. It was also lower than the better known consumer price index issued earlier by the Labor Department, showing December’s annual inflation at 2.9%.

It was also closer to the Fed’s target of 2% for optimal inflation as it considers changes in its key lending rate. The Fed last week chose to leave rates unchanged, as Chair Jerome Powell indicated that moderate inflation and a strong labor market allow the agency to be patient before lowering rates again.

Analysts at Oxford Economics said the Fed is not yet factoring Trump administration policies into its rate decisions, but has begun to assess the impact of a range of possible scenarios resulting from changes such as new tariffs on goods from Canada, Mexico and China.

“Powell noted that the Fed’s review of its monetary policy framework has just gotten underway, but said one thing won’t change: its 2% inflation target,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said in a statement.

The latest Commerce Department numbers showed December food prices remained about even with the prior month with a gain of just 0.2%. Energy prices rose 2.7%, while prices for durable goods such as appliances and electronics fell 0.4%. 

Construction prices are increasingly putting upward pressure on development costs and eventual sales pricing for new residential properties, especially single-family homes, according to the National Association of Home Builders.

The trade group said construction costs accounted for 64.4% of the average price of a new home in 2024, compared with 60.8% in 2022. The latest figure was also well above the 55.6% posted as recently as 2017, marking a new high in 27 years of tracking by the builder group.

“Broad inflation in the global economy since 2022 — particularly in building material prices — is largely to blame for the increased construction costs,” the NAHB said in a statement.

After construction costs, the trade group said finished lot expenses were the second largest factor, accounting for 13.7% of new home prices in 2024. The average builder profit margin was 11%, up from 10.1% in 2022.

Single-family, multifamily and other commercial developers previously reported lingering struggles with pricing and availability of certain building materials and construction components, such as electrical transformers. Many of those were tied to global supply chain disruptions stemming from the early months of the COVID-19 pandemic, with effects lasting well into 2024.