Are mitigation strategies impacting the investment and growth strategies of chemical companies?
As of December 2018, the Trump administration has imposed tariffs on over US$200 billion of goods imported from China, and China has responded in kind with tariffs on US$50 billion worth of goods on the US.1 The size and scope of these tariffs are unprecedented. These actions are affecting a large number of chemical manufacturers, their customers and suppliers. The long-term impact is not yet clear.
What can be acknowledged, however, is that chemical companies are closely watching changes occurring on a near-daily basis and, in some cases, already taking steps to reconsider their investment and growth strategies, so they can better address both immediate and long-term consequences.
Section 201 safeguard tariffs — Tariff-rate quotas on imported solar panel components (starting at 30 percent) and residential washing machines (starting at 20 percent) from any country, effective 7 February 2018.
Section 232 national security tariffs — Additional tariffs on specified steel (25 percent) and aluminum (10 percent) products from all but several countries, effective 1 June 2018.
Section 301 unfair trade practice tariffs — Additional tariffs (25 percent) on over 800 individual goods of Chinese origin, in a variety of industries.
China has responded in kind if not in volume to US trade actions, publishing two lists, the first of which targets approximately US$34 billion in imports with 25 percent tariffs that went into effect on 6 July. A second list of Chinese tariffs worth US$16 billion in imports from the US would be activated on 23 August 2018 and target medical products, chemicals, and energy products with 25 percent tariffs.2
In September 2018, Canada and Mexico reached an agreement with the US to update the North American Free Trade Agreement (NAFTA), a pact that governs more than US$1.2 trillion worth of trade among the three nations.3 The new deal, known as the United States– Mexico–Canada Agreement (USMCA), is designed, among other things, to encourage more cars and truck parts to be made in North America.
The EU has introduced retaliatory tariffs impacting over US$3 billion in US products, including motorcycles, clothing, and agricultural products.
The potential costs of Chinese tariffs on US imports is not insignificant. Across all Chinese tariff lists for US exports into China, there are 5,207 product lines, 987 of which are chemicals and plastic products. There are 132 lines for plastics. The value of the chemicals and plastics exports exposed to these tariffs was approximately US$8.8 billion in 2017.4 About US$2.9 billion of that total is related to plastics exports.5
Many US business leaders in the chemical industry argue that new taxes on Chinese imports would seriously harm the US chemical sectors.6 It should also be noted that some US chemical companies have been harmed by Chinese industrial policies and welcome the tariffs.7