INSIGHT: US chemical industry threatened by escalating China trade dispute

LONDON (ICIS)–The talk has become serious and the implications dire.

The US chemical industry has a great deal to lose from escalating trade tensions with China.

The Trump administration on Friday released a second list of proposed tariffs on China that included chemicals, plastics and lubes valued at $2.2bn.

According to the American Chemistry Council (ACC):  “The administration has now pit US chemical manufacturing directly against China at the front lines of this conflict”.

The threat level has increased markedly, prompting the trade group to react sharply. “We appreciate, and will vigorously utilise, the opportunity to share our comments and concerns with the Office of the US Trade Representative and others in the coming weeks to prevent this situation from escalating further,” it said.

China is unlikely to give much ground in this threatening dispute as it drives hard to strengthen domestic manufacturing and its domestic economy, with eyes firmly fixed on long term strategic goals.

President Trump is looking to act on election pledges and generate support ahead of mid-term elections in November.

Chemicals sit in the middle of this dispute, not attracting too much external attention as a sector but targeted by both sides for its importance in manufacturing and construction value chains and in forward-looking investment.

“Chemistry touches 96% of all manufactured goods and is the foundation for the entire North American supply chain,” the ACC said.

“What gives chemistry a competitive advantage – lower US feedstock and chemical production facility costs – ultimately helps reduce costs for American businesses and consumers and has turned the US business of chemistry into one of America’s top exporting industries, accounting for 14% of all US exports.”

Of course, that proportion has been likely to rise given massive investment in shale-based chemicals and processing.

But the current dispute threatens investment and ultimately the smooth running of chemical and other supply chains.

The ACC calculates that as much as half the $194bn of planned chemical industry investment in the US is at risk of delay or abandonment. As many as 24,000 jobs in chemicals and downstream industries are under threat from China’s retaliation in the escalating dispute.

China is one of the US chemical industry’s main trading partners. China already imports 11% of US plastics, worth $3.2bn.

The great tranches of new capacity coming on-stream in the US this year and next could face a severe uphill battle to enter China markets should 25% tariffs be imposed. New investment economics is clearly threatened.

China is rapidly becoming self-sufficient in the major petrochemicals and increasingly so in polymers.

Tariffs of 25% on low-to-medium density polyethylenes would be keenly felt and it is not as if China hasn’t sources of polymer other than the US.

In the ACC’s words: “Enabling a retaliatory trade war will only advantage China’s growing industry at the expense of American production”.

China moved swiftly on Friday to counter the US tariff threat. Its Ministry of Finance said it would impose a 25% tariff on $50bn of US imports.

It has threatened its intention to impose 25% tariffs on $34bn of US imports as soon a 6 July.

A number of chemical and related products are included in a list on which a decision would be made separately.

This includes polyethylenes, polyvinyl chloride (PVC), polycarbonate, and polyamide alongside propane, LPG and hydrocarbon gases, naphtha, crude benzene, toluene and xylenes, and crude oil. There are 114 products on this second list.

Financial markets in Europe on Monday paid some heed to the trade threat unlike the market in Japan where chemical stocks were down sharply. The markets in China and Hong Kong were closed on Monday for the Dragon Boat Festival holiday.

By Nigel Davis