Trade Wars Create Collateral Casualties

The U.S. chemical industry may suffer substantial and sustained harm

By Mark Rosenzweig, Editor in Chief

Convincing China to engage in fair trade practices is both laudable and necessary. However, imposing hefty tariffs on Chinese products is an ill-advised strategy, warns a major trade group, the American Chemistry Council  (ACC), Washington, D.C. These tariffs and the predictable retaliation in kind by Beijing threatens the well-being of the U.S. chemical industry, stresses the ACC.

Overall nearly 55,000 American jobs and $18 billion in domestic activity are at risk.

In July, the Trump Administration slapped 25% tariffs on a wide variety of Chinese goods. In August, Washington extended these 25% tariffs to additional products, with more than half coming from the chemicals and plastics sector, notes Emily Sanchez, ACC’s director of economics and data analysis. Most are plastics and plastics products, she explains, adding that they account for $2.2 billion in U.S. imports from China in 2017.

The Administration may extend the 25% tariff to an additional 6,000+ products. This includes 1,505 chemicals and plastics products that represented $16.4 billion in imports in 2017, says Sanchez. A decision about imposing these tariffs was imminent at press time.

Predictably, China has responded tit-for-tat. It imposed 25% tariffs on some American products in July but none were chemicals or plastics. It’s August round of tariffs covered 40 chemicals and plastics products with an export value of $2 billion in 2017, reports Sanchez. If the U.S. imposes tariffs on additional Chinese products in September, Beijing has indicated it will target more American goods. The ACC estimates that the affected chemicals and plastics products represent about $8.8 billion in exports, with plastics accounting for about $2.9 billion of that.

The Chinese tariffs will have a substantial economic impact in the U.S. Sanchez estimates that initially when Chinese importers can’t find alternatives to some American supplies, U.S. exports will drop by $1.6 billion annually. In the worst-case scenario where importers can adjust their supply chains to substitute for American products — a scenario that Sanchez terms entirely possible in the longer term — the loss in exports could reach $6.1 billion/year.

Overall, the Chinese tariffs already in effect or proposed subject $11 billion of U.S. chemicals and plastics exports to increased duties ranging from 5% to 25%, notes Sanchez. The ACC estimates that the U.S. chemical industry alone could lose more than 8,000 direct jobs because of reduced exports to China. The domino effect on the supply chain and from lower spending from fewer chemical industry workers means that nearly 55,000 American jobs and $18 billion in domestic activity are at risk, she says.

The chemical industry is a shining star in U.S. manufacturing. In our last state-of-the-industry report, “The U.S. Chemical Industry Gears Up for Gains,” Martha Moore, ACC’s senior director for policy analysis and economics, noted that the industry posted a $32-billion trade surplus in 2017. It projected, barring any major disruptions in the trade scenario, that the surplus should grow to $73 billion by 2022. Moreover, the article pointed out that the U.S.’s competitive advantage because of shale gas and abundant natural gas liquids has led to massive investments by foreign firms in American production facilities; the tariffs situation could blunt the appeal of building plants in the U.S.

The federal government should focus on underpinning our industry’s success, not undermining it. Rescinding the tariffs and opting instead for cohesive efforts with U.S. allies is the most constructive and productive way to get China to change its policies on trading and intellectual property protection.


rosenzweigweb.jpgMARK ROSENZWEIG is Chemical Processing's Editor in Chief. You can email him at mrosenzweig@putman.net.

 

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