The opening lines of Charles Dickens’s “A Tale of Two Cities” have become a cliché; still, sometimes the words ring true.
Many in the audience at the American Chemistry Council’s recent annual meeting could nod in agreement when Nariman Behravesh, chief economist at the consulting firm IHS Markit, began a keynote talk by explaining the current economic situation with Dickens’s words: “It was the best of times, it was the worst of times.”
Behravesh was describing a world with a bright economic outlook but also a high dose of uncertainty; much of that uncertainty, he said, is being created by the Trump administration.
That dichotomy is especially sharp for the chemical companies that were at the meeting, held from June 4 to 6 in Colorado Springs. Thanks to the strong economy and low-cost raw materials, the U.S. chemical industry is doing great. Demand is strong and investment is booming. But Trump’s actions on trade and tariffs are giving executives agita at a time when they should be feeling good. Public dismay over the impact of plastics on the environment isn’t helping either.
In his talk, Behravesh criticized Trump administration actions on immigration and trade. For starters, he bemoaned the impact of U.S. restrictions on H-1A and H-2B visas for foreign workers, given that IHS expects U.S. unemployment to soon reach 3.5%, the lowest rate in 50 years. “We’re scraping the bottom of the barrel,” he said about U.S. employers. “We need skilled workers; we need unskilled workers.”
Behravesh also slammed what he sees as the Trump administration’s misguided actions on trade. Playing on Trump’s contention in a March 2 tweet that “trade wars are good, and easy to win,” Behravesh quipped that “trade wars are very bad, and unwinnable.”
The administration’s planned 25% tariff on $150 billion worth of Chinese imports is basically a $40 billion tax on the American public, he said. That’s almost one-third of the impact of Trump’s tax cut.
And Behravesh questioned the administration’s efforts to protect the U.S. steel and aluminum industries with tariffs, including ones against allies in Europe, Canada, and Mexico. “What’s unfathomable to me is why we are protecting old industries and not doing enough to protect new ones,” he said.
IHS forecasts that the tariffs, if allowed to go into full effect, will shave a few tenths of a percent from U.S. economic growth, which it forecasts will be 2.8% this year. More insidious is the effect they could have on industry supply chains and on business sentiment in general.
Frustration over trade policy also pervaded a press conference held by Cal Dooley, the trade association’s CEO, and three of its top officers: Bhavesh V. Patel, CEO of LyondellBasell Industries; Mark P. Vergnano, CEO of Chemours; and Jerry MacCleary, the North American CEO of the German firm Covestro.
A year ago at the same event, executives avoided direct criticism of Trump’s economic policies; this year they took off the gloves.
Dooley did point out a number of ways the industry is happy with the Trump administration. For example, last year’s corporate tax cut helped level the playing field for U.S. companies in the global marketplace. And a “rebalancing” of certain regulations that were enacted during the Obama administration has removed onerous provisions without compromising environmental protections, he said.
But on the subject of trade, Dooley and the company executives were as unsparing as Behravesh. Dooley pointed out that tariffs like the ones Trump wants to impose beget retaliatory tariffs. In fact, he added, 40% of the tariffs that China said it will impose in response to the U.S. action target chemicals. “That wasn’t an accident,” Dooley said. “Retaliation will always be targeted at sectors of the economy that have a global competitive advantage.”
The U.S. chemical industry had a $33 billion trade surplus with the rest of the world last year; in normal circumstances, the surplus would reach $71 billion by 2023, according to ACC. Aiding chemical exports should be 325 investments valued at more than $194 billion that firms have announced in the U.S. to take advantage of low-cost raw materials extracted from shale oil and gas.
But those projects were predicated on free access to international markets. “We’re building enormous capacity in the U.S.,” Patel said of the industry, “and to the extent that tariffs impede our ability to do that, then that’s an issue.”
Industry executives acknowledged that Trump has some legitimate gripes about the trade practices of China and other countries. But they want the administration to seek a negotiated resolution in collaboration with its international allies. “This is ultimately about job creation in America,” Patel said.
The consulting firms trying to drum up business at the ACC meeting took the opportunity to advise attendees about how to succeed in today’s high-growth, high-anxiety environment.
Chris Cardinal, a director at PricewaterhouseCoopers, talked about the challenge of deglobalization—the retrenchment of open borders and free trade as economic nationalism rises. In this new environment, companies that once freely set up international operations may now have to cooperate more with local suppliers to get their products to market, Cardinal said.
Likewise, sending technology developed in a central R&D center straight to far-away countries doesn’t always work in a deglobalizing world. “You need the research center out in the market,” Cardinal said. “You need to be local.”
Paul Bjacek, research lead for Accenture’s chemical practice, talked about localization as a third phase of Western industrial evolution after deindustrialization and, more recently, reindustrialization. Although trade barriers are a reason to localize, so is providing local customers with customized products. Bjacek pointed to the Speedfactories that Adidas has set up in Germany and Atlanta to build personalized athletic shoes.
In addition to potential trade wars, ACC executives were on high alert about plastic waste, particularly waste in the marine environment. More than one attendee pointed to the sad images appearing in magazines and on social media of sea animals that died after ingesting or becoming entangled in plastic waste.
At an otherwise festive closing dinner, Dooley acknowledged that the issue of plastic waste is “of concern to every man, woman, and child.” And he called solving the problem “an imperative for our industry, a condition of our license to operate.”
Some potential solutions are market based. Bucking the traditional reluctance of polymer producers to invest in recycling, LyondellBasell recently acquired the Dutch recycler Quality Circular Polymers in partnership with the waste management firm Suez. Patel said the new owners are looking to expand QCP to new locations across Europe.
But other initiatives are necessary as well, executives said. Steve Russell, ACC’s vice president for plastics, pointed to the association’s recently announced goal to make all plastic packaging used in the U.S. recyclable or recoverable by 2030 and all of it actually reused, recycled, or recovered by 2040. Soon after the meeting, leaders at the G7 summit in Canada signed a pledge to reduce plastic waste. Two days later, ACC announced that Dooley would stay on past his planned retirement to work on the plastic waste issue (see page 13).
Between trade issues and plastics woes, it was easy to forget that attendees were enjoying some of their best economic times in decades. In a briefing for C&EN, Accenture’s Bjacek noted that profits for the 57 firms he tracks are their highest in more than 10 years. And at the closing dinner, Dooley pointed out that almost half of all U.S. manufacturing investment last year was made by the chemical industry.
In this spirit, meeting organizers eschewed the usual pundit or political veteran as dinner entertainment and instead hired Martina McBride, a country music singer. The goal, one official said, was to forget politics for a while. By the end of the dinner, many normally staid executives were dancing between the tables.