U.S. President Trump announced several tariffs since he took office on Jan. 20, 2025. The timing and implementation of these potential tariffs remain unclear.

• On Feb. 1, Mr. Trump announced tariffs of 25% on goods imported from Mexico and Canada, 10% on energy products from Canada, and 10% on goods imported from China. China responded with retaliatory tariffs of 10%-15% on certain U.S. products.
• On Feb. 3, the U.S. and Mexico agreed to postpone tariffs on imports from Mexico and Canada by one month. Canada and Mexico will likely impose tariffs on U.S. goods if the U.S. introduces the tariffs.
• On Feb. 10, the U.S. president announced a 25% tariff on steel and aluminum imports that is due to take effect on March 12.
• On Feb. 26, the U.S. president announced a 25% tariff on European goods that will be applied soon.
• On Feb. 27, Mr. Trump said that the U.S. would impose an additional 10% tariff on imports from China.

A potential universal tariff on all U.S. imports could increase costs for building materials companies and households. In fact, the largest rated European building materials issuers have a meaningful U.S. presence, which has increased both organically and through external acquisitions over the past decade.

The U.S. market currently constitutes the main contributor to issuers' consolidated profits. Most European issuers' production facilities in the U.S. match the local demand. The global supply chain footprints of some European light-industry building materials producers extend to Canada, Mexico, and China.

Tariff Effects On Heavy Industry Are Constrained

We believe a deterioration in trade relationships among the U.S., Canada, and Mexico would only affect selected materials and products, such as lumber and gypsum. For example, a press release the National Association of Home Builders in the U.S. suggests that about 70% of the sawmill and wood products that the U.S. imported in 2023 came from Canada. The U.S. also imported $452 million worth of lime and gypsum products in 2024, with $329 million or 73% of these products originating from Mexico.

Heavy-industry building materials and products are usually made locally since they are inconvenient to ship and therefore subject to high transportation costs. Additionally, some of them must comply with local requirements and regulations. Consequently, the U.S. sales of heavy-industry building materials companies that produce in Europe are limited.

Light Industry Could Be More Affected

U.S. tariffs could be slightly more detrimental for light-industry building materials companies than their heavy-industry peers. This is particularly the case for electrical component manufacturers, which tend to have manufacturing facilities or assembly facilities in low-cost countries or regions, such as Mexico or Asia. Electrical components and products also include chips and electronics, which are primarily sourced in China.

Pass-through of extra costs could become more challenging

We do not assume that companies would immediately change their operating footprint by relocating their production to the U.S. Instead, they will continue to value a geographically diversified production and assembly footprint.

Most building materials companies are confident that they could pass through additional costs from tariffs, not least due to the sector's solid track record of passing through inflation costs over 2022-2024. In our view, however, companies might struggle to pass through tariff-related costs quickly and fully, given the current weakness in the residential construction market. That said, we believe any profitability impairments would be temporary and moderate.

For example, Legrand S.A. announced in its 2024 results that U.S. tariffs could lead to additional costs of $120 million-$140 million, which represents about 1.5% of the company's total sales. In such a scenario, we believe Legrand would pass through these costs and adapt its cost base to fully offset the tariffs. Similarly, Rexel S.A. said that any price increase from its suppliers would be passed through to customers and that the value of its existing inventory would also increase.

We expect companies would pass through tariff-related costs by increasing the value of their products, which could dilute operating margins by an average of up to 0.5 percentage points. The absolute operating margin would remain unchanged.

Megatrends might offset tariff-related impairments

In our view, the light-industry building materials sector still benefits from long-term megatrends, such as digitalization and electrification. Growth perspectives for electrical products in the U.S. will remain solid over the medium term, which is a key opportunity for European companies with a presence in the U.S. For example, the recently announced $500 billion Stargate AI infrastructure project in the U.S. could boost infrastructure end-markets further. In Europe, France also announced a €109 billion AI investment program.

We believe growth prospects for AI and datacenters remain substantial, despite the progress of Asian AI start-ups. For example, Legrand reported a 15% growth in 2024 in its datacenter segment, which now accounts for 20% of sales, and expects double-digit growth in datacenters in 2025. In the case of Legrand, we consider that growth prospect for datacenters will outweigh any potential impairments from U.S. tariffs.

Indirect Implications Are Currently Difficult To Quantify

Indirect risks from U.S. tariffs for the entire building materials industry may include:

• Decreasing volumes due to a more depressed macro environment (see table 1). If the tariffs remain in place through 2025, we expect they could cause a one-time rise of 0.5%-0.7% in U.S. consumer prices and decrease U.S. real GDP to 1.4% in 2025, compared with our current forecast of 2.0%. Under this scenario, we project U.S. sales volumes of building materials and products companies will likely reduce.
• Higher housing prices, especially in the multi-family residential end-market. We expect building materials manufacturers and distributers would pass through any additional costs from tariffs. We note that manufacturers have consistently increased prices since 2021, not least due to high inflation. For example, prices of ready-mix concrete increased by more than 50% over 2020-2023, according to the U.S. Bureau of Labor Statistics. This led to a decline in construction and lower volumes of materials sold, even in the U.S. We believe higher tariffs could exacerbate this phenomenon.
• If U.S. tariffs on European products come into force, we expect retaliation measures from the EU, including tariffs on products from the U.S. Under this scenario, building materials prices in Europe could increase, resulting in additional pressure on volumes. Furthermore, the negative sentiment spreading across other European industries that are more affected by a potential trade war could impair household confidence and an already weak economic growth in Europe. A prolongation of the current downturn in building materials in several European countries would likely put pressure on lower-rated and less geographically diversified European building material companies, whose rating headroom is much lower than that of higher-rated and more diversified groups.

We note that a stronger U.S. dollar could partially mitigate tariff-related impairments and boost the sales of European building materials companies.

Table 1

Ratings Impact Remains Limited

Rated European building materials issuers with operations in the U.S. are typically large and diversified. Additionally, they benefit from a stable ratings outlook and adequate rating headroom. Based on our expectation that the direct effects from the tariffs will be limited or offset by the positive effects of megatrends, we forecast that the rating headroom of European building materials issuers will remain broadly unchanged (see table 2). We think it is unlikely that moderate macroeconomic implications alone will put pressure on the ratings.

Table 2

Instead, we believe financial policies will continue to determine companies' creditworthiness and our ratings. In case of a meaningful economic downturn due to a wide adoption of trade tariffs, we expect issuers would reduce capital expenditure or share buybacks because they are usually committed to preserving the ratings.

We rate a limited number of European speculative-grade companies that have sales or production assets in the U.S. Rating pressure on speculative-grade issuers, especially those in the 'B' rating category, could arise in case of retaliation measures from the EU. This is because these lower-rated issuers display weaker business profiles and higher financial leverage, meaning they could suffer if pressure on volumes increases.

Related Research

• What Looming Tariffs Could Mean For U.S. Corporates, Feb. 27, 2025
• How Might Trump's Tariffs--If Fully Implemented--Affect U.S. Growth, Inflation, And Rates?, Feb. 6, 2025
• Global Building Material Companies--Strongest To Weakest, Jan. 30, 2025
• Industry Credit Outlook 2025: Building Materials, Jan. 14, 2025