The Fourth Quarterly Cost Report shows how national economic policies can dramatically affect construction costs. In the exclusive international cost survey prepared for ENR by Gardiner and Theobald, London, global cost activity in 2002 ranged from significant deflation of 7.1% in Hong Kong to a 91% increase in Argentina. This kind of spread in a cost environment that is mainly flat shows that some nations are doing the right things and some clearly are not.

Some nations just can’t seem to get their act together. After many years of grotesque inflation, Argentina seemed to be on the right track, with construction inflation down by 1.7% in 2000 and 0.8% in 2001 (see p. 29). But the economic collapse partially brought on by a mountain of public debt and social unrest triggered the 91% cost hike this year. Romania is another struggler. Trying to shake off the vestiges of a centrally controlled economy, construction inflation there climbed 24.2% in 2000, 39.9% in 2001 and 34.3% this year. How come?

The answer partially lies in a nation’s political stability—the degree to which citizens and residents buy into the political system, are employed and contribute to the economy. Some nations also struggle with corruption, currency exchange rates and classes of “haves” that have locked and bolted the door to opportunity for the “have-nots.”

And then there are those nations that try to manipulate the prices of construction commodities, usually under the guise of protecting domestic industry. Economists like to focus on the margins––the peaks, troughs and the last penny that prices can be raised before buyers balk. That is where the action is because that is where the most critical decisions must be made. So economists should be in their element in today’s market, which is precariously balancing at the turning point of the construction cycle.

This is the point of the construction cycle where policy decisions can have their most beneficial or most catastrophic consequences. Because of its size and resources, the U.S. is not swept around in cost currents as swiftly as a nation the size of a large city. But it is not immune from stupidity.

The 27% tariff on the imports of Canadian lumber, intended to protect domestic mills from competition, is ineffective. Canadian mills have such a natural advantage in the lumber market that they are still low-cost producers even with the huge tariff. Industry analysts say the tariff is having the opposite effect than intended as low-cost Canadian producers crank up production to lower their unit costs. That strategy appears to be working with there being no discernable decline in the volume of Canadian imports into the U.S.

The U.S. government’s other grand scheme to interfere with the markets by protecting the steel industry also may be a flop. The initial price spike from the tariffs already is starting to fade and when tariffs are reduced next March, the party begins again at consumers’ expense. Lower imports now may have more to do with the weaker U.S. dollar than brilliant policy.