Chemical makers fret over renewed US-China trade war

The US and China are escalating their trade war, and the US chemical industry is caught in the cross fire.

In September, the Trump administration imposed 10% tariffs on $200 billion worth of Chinese goods—among them 1,364 chemicals—adding to tariffs on $50 billion of Chinese goods levied earlier in the year. On May 10, the Office of the US Trade Representative raised the 10% tariffs to 25% as US officials expressed frustration over negotiations with China. They accused their Chinese counterparts of retreating from “specific commitments” made in earlier negotiation rounds.

Ratcheting up the pressure further, the US is putting into motion a plan to impose tariffs of up to 25% on another $300 billion worth of Chinese goods. That list is laden with consumer items, such as cell phones and textiles. It also contains chemicals like vinyl chloride, vanillin, and sucralose.

In retaliation for the May 10 action, China is raising tariffs on $60 billion worth of US goods. This is in addition to 25% tariffs on about $50 billion in US goods the Chinese government imposed last year.

In this most recent salvo, China will tax some 2,500 items at 25%. Among them are chemicals such as methylene diphenyl diisocyanate and polyethylene terephthalate chip. The list also includes agricultural products such as peanut oil, sugar, and maple syrup and raw materials like wood, steel, and textile products.

China is also tacking tariffs of 5, 10, and 20% on more than 2,600 goods. The tariffs are far reaching, covering everything from pasta to grand pianos. Chemicals on these lists include benzoic acid, titanium dioxide, polybutylene terephthalate, phenol, propylene oxide, and silicone.

“The tariffs are not going to be helping this sector,” says Edward Brzytwa, director of international trade for the American Chemistry Council (ACC), the leading US chemical industry trade group. “They are constraining our growth and limiting our export potential.”

According to the ACC, the US tariffs implemented thus far affect $15.4 billion in annual chemical and plastic imports from China, while the Chinese tariffs impact some $10.8 billion in US chemical and plastic exports. The US chemical trade deficit with China last year increased from $1.4 billion in 2017 to $4.0 billion last year, in part because of the tariffs, the ACC says.

With the tariff rates now being hiked on both sides, the trade impact may be even “more dramatic,” Brzytwa says. He’s particularly worried about the list of $300 billion worth of goods the US published last week. On it are 114 chemicals and plastics the Trump administration proposed for tariffs last year but withdrew, largely because of outcry from chemical makers. These products represent about $2.7 billion in imports from China.

The Office of the US Trade Representative has scheduled public hearings for June on the new list of products. So far, the administration has promised not to impose tariffs on rare-earth materials, pharmaceuticals, and pharmaceutical inputs.

The Society of Chemical Manufacturers and Affiliates, another trade group, is worried that the tariffs will disproportionately affect the specialty chemical makers it represents, especially firms that rely on exotic molecules from abroad. “Specialty chemical supply chains are particularly dependent on China because in many cases China is the sole supplier of raw materials and building block chemicals,” the group says.