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Trade

Chemical makers fight new Trump tariffs

US chemical makers worry that an additional round of taxes on Chinese goods will hurt their competitiveness

by Alexander H. Tullo
July 5, 2019 | APPEARED IN VOLUME 97, ISSUE 27

 

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Credit: Port of Long Beach
The Trump administration has proposed tariffs on $300 billion more in imports from China, including $11 billion in chemicals and plastics.

Jean Yoho is worried about the latest round of tariffs the Trump administration has proposed on goods from China. As the head of procurement for Sun Chemical’s pigments division, she buys 3-hydroxy-2-naphthoic acid, also known as BONA, from China. From this, Sun Chemical makes the pigment red 57, lithol rubine, at a plant in Michigan.

Should the Office of the US Trade Representative move forward with a 25% tariff on BONA, Sun Chemical’s Michigan plant would be less competitive. China is the only source of BONA. “We would actually end up being uncompetitive against all other foreign manufacturers because they’re not impeded by that 25% tariff for the feedstock,” Yoho says. Moreover, she notes, a firm in Canada, for example, could produce inks containing red 57 derived from Chinese BONA and enter the US duty-free.

Sun Chemical faces a similar situation for perylene red, a pigment made from naphthalic anhydride, also made only in China and facing a potential duty. Sun Chemical, a subsidiary of Japan’s DIC, says it has contingency plans involving its overseas operations in the event of tariffs on the pigment intermediates.

The Trump administration’s aggressive trade protectionism has exposed a vulnerability of the US chemical industry. Many specialty and fine chemical makers depend on China for exotic chemical intermediates. Imposing tariffs on such materials, these US companies say, protects no one and serves only to drive their costs up and their competitiveness down.

Large chemical makers are also fretting over retaliatory measures from China. Companies have invested more than $200 billion in new chemical facilities over the past decade to take advantage of low-cost US shale gas. Much of this new capacity is dedicated to the export market.

The trade war with China began last year when the Trump administration imposed 25% tariffs on $50 billion worth of Chinese imports. The Chinese government responded in kind. In September, the US then imposed 10% duties on Chinese products valued at $200 billion. China, in turn, tacked 5 and 10% tariffs onto $60 billion in US goods.

According to the American Chemistry Council, a trade group, the US tariff rounds affected $15.4 billion in Chinese-made chemicals and plastics, about 53% of chemical imports from China. The retaliatory measures affected $10.8 billion in US exports of chemicals and plastics to China, about 85% of the total, the ACC says.

But the Trump administration wasn’t finished. In May, unhappy with how trade talks were going, it raised the 10% tariffs to 25%. It also put out a list—dubbed List 4—of $300 billion worth of Chinese goods potentially subject to duties of up to 25%. Combined with the earlier ones, these tariffs will hit effectively all Chinese chemical and plastic imports, the ACC says.

List 4 is meant to affect the most conspicuous products from China, like consumer electronics and clothing. The list also features about 214 chemical and plastic product categories worth about $11 billion in imports annually. It combines with the previous lists for a total impact of $26.4 billion in chemical and plastic imports.

List 4 may be on hold. President Donald J. Trump met with Chinese President Xi Jinping on June 29 during the G20 summit in Osaka, Japan. They agreed to resume trade talks and to a truce against further escalation of the trade war. Trump agreed to suspend, at least for now, the $300 billion in tariffs.

When the new tariffs still looked certain last month, chemical makers converged on Washington, DC, to argue before the Office of the US Trade Representative (USTR) to have their products taken off List 4. Sun’s Yoho testified at the hearings, as did the ACC and Socma, a trade group for specialty chemical makers.

Socma submitted a list of 269 chemicals and other materials that its members say would cause them hardship if hit with tariffs. The Sun Chemical intermediates are on the Socma list. Itaconic acid, a dicarboxylic acid used to make an agricultural chemical that improves fertilizer uptake in plants, is also there. The Socma list also includes a slew of pharmaceutical products, including mannitol, used as a diuretic. A number of food ingredients made the Socma list as well, including vanillin and the emulsifier polysorbate 80.

“We’re buying those products, but then we are taking those inputs and turning them into American products, every single time. That’s what we do,” Robert Helminiak, vice president for legal and government relations at Socma, tells C&EN.

The Socma list doesn’t even cover all the chemicals that are important for US industry. A prominent example is dodecanedioic acid. It is reacted with hexamethylenediamine to make nylon 6,12, used in automotive parts such as fuel and brake lines.

Besides a single supplier in Europe, Chinese producers are the only dodecanedioic acid suppliers, says Robert Meyer zu Westram, president of EMS-Chemie North America, a producer of nylon 6,12 and other specialty nylons. Meyer zu Westram testified before the USTR. If a tariff goes into place, he’ll be forced to raise prices for the polymers. This would hurt his company in relation to foreign rivals and competing imported products like nylon 12.

Meyer zu Westram is bewildered about who the proposed tariff is meant to help. “It doesn’t protect the local industry because there is no alternative,” he tells C&EN.

Possibly no other material provoked more letters to the USTR than barium sulfate, also known as barite. It is employed in nearly every oil and gas well in the US to densify drilling fluids so they can stand up to high pressures.

According to the Texas Oil and Gas Association, the US mines only 330,000 metric tons of barite annually but consumes 2.4 million metric tons of it. China is the largest foreign producer of barite. The American Petroleum Institute also weighed in with written testimony: “Increasing the costs of these imported products with tariffs will likely hurt energy growth and negatively impact jobs and investments.”

Not every chemical company submitting testimony to the USTR was against every tariff. Occidental Chemical said it supports additional duties on sodium dichloroisocyanurate and trichloroisocyanuric acid, which are used in swimming-pool disinfectants. OxyChem pointed out in its testimony that the US International Trade Commission has twice found that Chinese producers are subsidized by the government and dumping the chemicals onto US markets.

CJ Bio America, which ferments amino acids in Fort Dodge, Iowa, wants lysine, threonine, and tryptophan to be added to the list for the same reason. “We believe subsidized Chinese producers are clearly dumping product into the US market at significantly below-market prices,” wrote Joseph Lucas, vice president and managing director of CJ Bio America, in his testimony.

For the ACC, a major concern is what the Chinese government might do in retaliation for the US tariffs. A big part of that $200 billion in shale-related investment comes from multibillion-dollar ethylene crackers and polyethylene plants intended to serve the export market.

“I am talking to a number of our members, and their mitigation strategies involve letting people go or stopping certain chemistries in the US,” says Ed Brzytwa, the ACC’s director of international trade. “Or maybe they won’t move forward with an investment.”

For US chemical producers, one of the most galling aspects of Trump’s tariffs is the sense of uncertainty they create, especially when the USTR acts in seemingly arbitrary ways. For example, some 114 of the chemicals and plastics on List 4—representing $2.7 billion in trade—were originally in a draft of the previous round of tariffs, List 3, last summer. After testimony back then, the USTR removed them from List 3, presumably because officials agreed they were too important to tariff.

Sun’s red 57 precursor was in that category. “We were assuming, like everyone else, that once it was delisted, it wasn’t going to be put back on,” Sun’s Yoho says. “It was a shock, and we don’t really understand what the reasoning was.”

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