Trade tariffs fears

C&I Issue 8, 2018

Chemicals should be removed from the frontline of the US trade war with China in the interest of the US chemicals industry, says the American Chemistry Council (ACC). ‘China’s tariffs on US chemicals and plastics exports will result in reduced demand,’ the ACC warns. ‘Depending on the elasticity of demand for US products in China, the retaliatory tariffs could result in substantial losses for American producers.’

There have been three rounds of tariffs so far: $34bn from both sides in July; $16bn from both sides in August; and $200bn from the US and $60bn from China in September 2018. A total of 1517 chemicals and plastics imports from China have been targeted, valued at $15.4bn. Retaliatory tariffs hit more than 1000 US exports, worth $10.8bn.

The US chemical industry has committed to $200bn in new petrochemical infrastructure, largely along the US Gulf Coast, with much output targeted for export. ‘Around half of that investment is still in the planning or development stages and therefore vulnerable to delay or abandonment as a result of the new tariffs imposed on our industry,’ says Ed Brzytwa, ACC director of international trade.

According to S&P Global Platts, 10.8m t/year of new US polyethylene (PE) production is either operational or planned for construction or start-up in 2017-2019 and into the 2020s. ‘Most if not all of that new PE output will be exported,’ explains Kristen Hays, senior petrochems editor.

The investment in new infrastructure was prompted by the boom in shale gas, and resulting cheap ethane, Hays explained – with ‘China seen as the highest growth, therefore most important, export market for the new output’.

Other products for which China is a critical market include polyvinyl chloride for construction and styrene, used to make fibreglass, rubber and as a feedstock for plastics. Plastic consumption in Asia is set to increase by more than 75% by 2040, according to the ICIS newswire service, which predicts that plastic consumption in China will soon overtake levels in Europe.

‘The loss in demand due to retaliatory tariffs on US chemical exports to China will reduce the competitiveness of chemical manufacturers in the US and, as a result, output and job losses in the chemical industry will accrue,’ warns Brzytwa at the ACC. ‘Since chemistry touches 96% of all manufactured goods, tariffs on chemicals will ultimately raise the prices of popular consumer products.’

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