INSIGHT: US states near Canada face massive tariff bill on plastics imports

Al Greenwood

30-Jan-2025

HOUSTON (ICIS)–Customers in several US states closer to Canada than its Gulf Coast petrochemical hubs import large amounts of plastics and chemicals from the country, including materials that the US produces in abundance, and these shipments could soon become subject to tariffs totalling hundreds of millions of dollars.

  • US President Donald Trump has said he could announce on February 1 tariffs of up to 25% on imports from Canada and Mexico.
  • Even though the US has large surpluses of many plastics and chemicals, domestic companies still import large amounts of these materials from Canada.
  • These customers face the prospects of higher tariffs from Canadian imports or potentially higher shipping costs from suppliers that are farther away.

CANADIAN EXPORTS TO NORTHERN STATES
US plastics and chemicals production is concentrated on the Gulf Coast in the south, which is far from the manufacturing and plastic processing hubs in Michigan, Illinois and Ohio in the north. These and other northern US states are much closer to Canada’s petrochemical plants in Sarnia, Ontario province, than they are to the Gulf Coast.

The following table shows various plastics and chemicals that Canadian exported in 2023 to Michigan, Illinois and Ohio. The bottom row shows how much customers from each state would pay if a 25% tariff was levied on the total value of these 2023 exports. Export figures are in tonnes.

HTS Code Description Michigan (tonnes) Illinois (tonnes) Ohio (tonnes)
3901.10.00 PE having a specific gravity of less than 0.94 30,403 41,967 59,908
3901.20.00 PE having a specific gravity of 0.94 or more 125,693 66,493 85,328
3901.40.00 Ethylene-alpha-olefin copolymers 163,543 155,042 88,793
3902.10.00 Polypropylene 6,232 122,970 20,694
3901.30.00 Ethyl vinyl acetate copolymer 55 55,012 2,526
2905.31.00 Ethylene glycol 5 152,746 8,634
Total tariff bill $119,027,186 $243,701,358 $103,054,090

Source: Statistics Canada

CANADIAN IMPORTS FROM THE CAROLINAS
North and South Carolina are also large destinations for Canadian exports. These states are home to auto plants as well as facilities that make polyethylene terephthalate (PET), which uses monoethylene glycol (MEG) and purified terephthalic acid (PTA) as feedstocks.

The following table shows 2023 shipments made to these states. The bottom row shows how much customers would pay if a 25% tariff was levied on the total value of these exports. Export figures are in tonnes.

HTS Code Description South Carolina (tonnes) North Carolina (tonnes)
3904.10.00 PVC, not mixed with any other substances 428 134,433
2905.31.00 Ethylene glycol 66,973 2,731
2917.36.00 Terephthalic acid and its salts 102,162 162,505
3901.10.00 PE having a specific gravity of less than 0.94 25,379 13,076
3901.20.00 PE having a specific gravity of 0.94 or more 79,301 30,278
3901.40.00 Ethylene-alpha-olefin copolymers 98,070 40,879
3902.10.00 Polypropylene 38,763 1,033
Total tariff bill $168,380,231 $166,512,281

Source: Statistics Canada

Even though Texas is home to many plastics and chemical plants, it is still a destination for a large amount of plastic exports from Canada.

The following table shows 2023 shipments made to Texas. The bottom row shows how much customers would pay if a 25% tariff was levied on the total value of these exports. Export figures are in tonnes.

HTS Code Description Texas (tonnes)
3901.10.00 PE having a specific gravity of less than 0.94 62,300
3901.20.00 PE having a specific gravity of 0.94 or more 189,247
3901.40.00 Ethylene-alpha-olefin copolymers 185,610
3902.10.00 Polypropylene 21,315
Total tariff bill $145,297,714

Source: Statistics Canada

CONSEQUENCES OF TARIFFS
Whether the US proposes the tariffs on February 1 is still up in the air. Trump has used the threat of tariffs as a negotiating tool in the past, as he did against Mexico during his first term and against Colombia earlier this month. In both cases, the US reached agreements with the countries without imposing the tariffs.

If the US does impose the tariffs, customers could pay the additional tax, or they could find another supplier.

For states closer to Canada, new suppliers could increase shipping times and costs. If the tariffs are broad enough, customers will be competing for cargo space with other companies that are also procuring supplies from new suppliers.

The tariffs could make the US plastic and chemical markets more vulnerable to weather disruptions because most of its production is concentrated along the Gulf Coast.

This region of the US is vulnerable to hurricanes and, increasingly, to sub-freezing temperatures. Since 2021, the Gulf Coast has had spells of sub-freezing temperature every winter season. The region’s plants were not designed to operate in such low temperatures, so they typically suffer from unplanned outages during the winter.

Canadian material made US chemical and plastic supply chains more resilient by offering an alternative to Gulf Coast material.

HOW CANADIAN TARIFFS COULD UNFOLD
If the US does pursue tariffs against Canada, it will likely do so under the International Emergency Economic Powers Act (IEEPA) of 1977, said Jacob Jensen, a data analyst for the American Action Forum (AAF), a think tank. The IEEPA allows the president to propose actions to address a severe national security threat.

In the case of tariffs, immigration, fentanyl or both would be declared as national emergencies, and that would trigger IEEPA. Once the president notifies Congress through a letter or a speech, the tariffs could be imposed.

Imposing tariffs under IEEPA would be a first for the US, Jensen said. It could also be long term. The average duration of an IEEPA order is nine years. They can be terminated by a vote in Congress.

The US can impose tariffs under other laws, but the ones that Trump proposed for Canada do not meet the parameters under those regulations.

  • Tariffs under Section 301 address unfair trade practices and require investigations. The US has not started such an investigation on Canadian trade practices.
  • Tariffs under Section 232 cover specific products and are not broad-based like the ones Trump proposed against Canada.
  • Tariffs under Section 201 are intended to provide temporary relief for a group of products or an industry. They are not broad-based.
  • Tariffs under Section 122 have a limit of 15%.
  • Tariffs under Section 338 have no precedence and could face court challenges.

OTHER POTENTIAL TARIFFS
Since winning the election, Trump also proposed tariffs of 25% on imports from Mexico and 10% on imports from China.

During his campaign, Trump proposed the following tariffs:

  • Baseline tariffs of 10-20% on all imports.
  • Tariffs of 60% on imports from China.
  • A reciprocal trade act, under which the US would match tariffs that other countries impose on its exports.

Insight by Al Greenwood

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