By John Richardson
DESPITE PRESIDENT Trump’s 90-day pause in most of the reciprocal tariffs he imposed on 2 April, The Economist has provided a useful summary of the huge risks that still lie ahead:
Not a Total Ceasefire:
- China Hit Hardest: Tariffs on Chinese goods were hiked further to 125%, a retaliatory move after China responded in kind to US tariffs.
- Universal Tariffs Stay: A 10% base tariff on most imports remains, with higher rates (like 25% on cars) still in effect.
- More on the Horizon: Sectors like pharmaceuticals and semiconductors might get hit next.
- Temporary Relief: The 90-day delay doesn’t mean the end—Trump could revive higher tariffs, especially given his pattern with Canada and Mexico.
- Shock: In just two months, the US average tariff rate jumped from 3% to 20%—its highest in almost a century.
The old ways of analysing chemicals markets no longer work
This tells us the following about chemicals and polymers markets:
- The traditional way of analysing polymer markets no longer work.
- President Trump’s ‘Liberation Day’ tariffs could still push the world into recession.
- The fact that US tariffs still stand at their highest in almost a century means that it will no longer be possible to take advantage of someone else’s loss through higher tariffs.
- Everyone now stands to lose, with likely much more pain to come.
Now let me give you an example of what I am referring to.
Let’s start by delving into the history of the last trade war, via this June 2024 ICIS news story, to provide some of the old logic governing the way chemicals markets worked.
We wrote that in 2019, US PE heading to China declined by 41% from the previous year. This was the result of the additional 34% tariff by China levied on the existing tariff of 6.5%.
But in February 2020 as trade relations improved, China offered importers waivers on certain tariffs imposed on US PE and other plastics and chemicals imports.
For various types of US HDPE and LLDPE, on which a 34% tariff rate applied, Chinese importers could apply for a waiver and instead pay the pre-trade war duty of 6.5%
US LDPE exports were not included in the waiver.
Using HDPE as an example, the chart below shows the impact on US sales turnover in the 38 months after the end of the Chemicals Supercycle (January 2022 until February 2025) versus the 38 months immediately before the end of the Supercycle, which was from November 2018 until December 2021.
Whatever the destination of your PE exports, multiplying prices by export or import data from all the different customs departments has long been a useful way of checking month-on-month which are your strongest markets.
Here, of course, I’ve chosen a much longer time-period to provide perspective on who has lost and won in the key China market since the end of 1992-2021 Chemicals Supercycle compared with during the Supercycle.
As you can, Saudi Arabia’s HDPE sales turnover in China was down by $2.5bn, Iran’s by $1.5bn and South Korea’s by $545m.
Of China’s top ten HDPE trading partners, the UAE was slightly ahead with a gain of $54m. But the US gained a whopping $1.1bn in sales turnover.
Middle East Gulf integrated HDPE variable cost margins have been better than those in the US Gulf for most of the period from late 2018 up until April this year. So, the only explanation must be the US tariff advantage.
We can see how this played out in terms of the tonnes China reported that it imported from its top ten trading partner during these same two 38-month periods.
Imports from the US soared to nearly 2m tonnes from around 830,000 tonnes as imports from Saudi Arabia fell to 3.4m tonnes from 2.8m tonne. Imports from Iran declined to 2.3m tonnes from 4.2m tonnes with imports from South Korea falling to 2.3m tonnes from 2.8m tonnes.
This occurred as China’s total imports during these same two periods slipped to 17.8m tonnes from 24.8m tonnes on rising self-sufficiency and declining demand growth.
Last week’s decision by China to impose an additional 34% tariffs on imports of US PE on top the existing 6.5% had already wiped out the US advantage in exporting all the three grades to China.
“With a 34% tariff on top of the current 6.5% tariff, US PE margins go negative at current production costs.” said Harrison Jacoby, director of PE at ICIS, on the announcement of the 34% tariff.
And yesterday, in response to the US raising tariffs on Chinese imports to 125%, China raised tariffs on US imports to 84%.
If you think this has created a window for other PE exporters then think again as we head towards what could be a global recession, even a global depression in line with what happened during the 1930s.
Here are just a few of the many reasons why.
Sure, China seems likely to respond to the trade war with a big stimulus package. But without reforms to rebalance the economy away from exports and towards domestic consumption, I believe that any stimulus package will only, at best, provide a temporary sugar high.
And, anyway, the reforms required, including better pension and healthcare systems, would take a long time.
Because of the collapse of the real-estate bubble and China’s ever-worsening demographic crisis, China doubled-down on exports last year. In 2024, exports contributed some two percentage points to GDP growth, the highest in a decade.
Now, of course, China cannot export to the US cost effectively with US import tariffs at 125%.
China’s manufacturers will attempt to turn to other markets, but we should expect the EU, South Korea, Japan and Southeast Asia etc. to protect their domestic industries against what could be a flood of cheap Chinese goods.
Where do we go from here? Quite possibly to negative real GDP growth in China in 2024, beneath the official numbers. Then China wouldn’t want to import much HDPE from anywhere as its economy shrank.
Further, we must consider that there are still 10% additional US tariffs on trade-surplus economies besides China, such as Vietnam, Japan, Thailand and Turkey.
As the chart below shows, percentage wise these economies – along with China – are hugely important to South Korea’s export-focused HDPE industry (South Korea is also another a big trade surplus economy).
Note that it is the long-term approach of the White House to rebalance manufacturing trade in favour of the US and away from economies such as the ones above.
55% of South Korea’s total HDPE exports in 2024 went to Vietnam, China, Japan, Thailand and Turkey which still have the 10% additional tariffs.
South Korea’s HDPE exports to these same five destinations amounted to 39% of the country’s production in 2024, during a year when the country’s operating rate was already a record all-time low of just 66%.
We must also consider the effects on these economies of negative GDP growth in China. The effects would obviously be huge given their bilateral trade relationships with China.
The maths is similar for all the other major HDPE exporters in Saudi Arabia, Qatar, the UAE, Singapore, Malaysia and Thailand etc. And what applies to HDPE also applies to LDPE and LLDPE.
Conclusion: A coalition of the willing
As I said, the standard ways of looking at markets no longer work anymore.
Pretty much nothing that we understood before 2 April is of much use because of the first, second and third-order effects of this crisis that are only just becoming apparent.
Join me next Monday – 14 April – for my New Petrochemical Dynamics Course. We need to form a ‘coalition of the willing’ to work out the best way forward.