Just one month into his second term, US President Donald Trump is threatening to upend the rules-based order that has anchored global trade since the General Agreement on Tariffs and Trade was established in 1948. 

On 13 February 2025, the US Government launched the “Fair and Reciprocal Plan” on trade, laying down the foundations to impose blanket global tariffs on a country-by-country basis. Major trade partners signalled they would retaliate in kind; the European Commission, for example, promised to “react firmly and immediately against unjustified barriers to free and fair trade.” 

A trade war is thus brewing between the US and the rest of the world. How could this impact global real estate?

The impact of potential tariffs on inflation

Evidence shows that final consumers ultimately bear the cost of tariffs, making them inflationary. But as a one-off price increase on imported goods, the inflationary effect should be temporary.

I say ‘should,’ because it’s rarely that simple. A one-off price change can feed into future expectations of inflation, an important determinant of wages, and hence provide a catalyst for more persistent inflation (the ‘wage-price spiral’). Policymakers will focus on this dynamic; it’s already underpinned a scaling back in market-based expectations for the pace of US Federal Reserve rate cuts.

But the impact on economic growth, and hence demand-driven inflation, is likely to act in the opposite direction. Notwithstanding some pull-forward in inventory accumulation and consumption ahead of price increases, which appears to be happening in the US already, higher inflation will reduce household purchasing power, weakening consumption, while broader tariff uncertainty will weigh on business investment.

How real estate could be affected

The longer term impact is unambiguously negative; tariffs reduce competition and distort the efficient allocation of capital and labour, leading to slower productivity growth. All else being equal, weaker growth means less demand for real estate.

The direct feedthrough of tariffs to goods demand will be most relevant for the logistics and retail sectors. For the former, assets leveraged to the storage and distribution of traded goods are most exposed to a decline in imports and exports. But permanently higher trade barriers will support some import substitution through domestic manufacturing, and accelerate trends around onshoring and nearshoring, although neither directly replace free trade.

Then there is the impact of tariffs on development activity. The US National Association of Home Builders estimates that around 7% of goods used to build new houses are imported. While modest, a further increase in construction costs following a sustained period of build-cost inflation could likely exacerbate the US’s existing housing shortage. Steel and aluminium tariffs would clearly feed into higher construction costs for the commercial real estate sectors.

Variable geographical impacts

This analysis is principally focused on the US, although the mechanics are similar across all economies. But the proposed tariffs principally set the US in opposition to the rest of the world. This means that the major effects will be felt in the US.

Moving away from the US, the impact is generally diminished. Excluding Canada and Mexico, there’s limited exposure. Across much of Europe, the US accounts for less than 10% of exports; in China this is under 15%. And while 20% of Japanese exports are destinated for the US, this only accounts for around 3% of GDP.

As such, the impact of any tariff-induced decline in exports to the US on economic growth elsewhere could be relatively muted. Meanwhile, as many major US exports are substitutable, many trade partners could look elsewhere if facing retaliatory import tariffs, with limited pass-through to inflation.

The main global risk is whether the US’s policies ultimately precipitate a more fragmented global economy, where all countries reduce globalisation and adopt protectionist policies. The IMF estimates that a broad-based increase in trade restrictions could reduce global GDP by up to 7% over the long term, equivalent to losing the output of France and Germany. But there’s no indication that the rest of the world is as willing to abandon the existing rules that govern global trade.

Further information

Contact Oliver Salmon

IMPACTS: Adjusting to a new world order