By John Richardson
THIS MAY COME to very little, of course. Deals could be done, compromises made and/or US polyethylene (PE) export sales may be barely dented by “trade wars” because of contracts for supplies of approved grades and logistics.
Take Europe as an example. Even if the EU proceeds with its plans to increase tariffs on US PE imports, converters could have a substantial number of long-standing deals with brand owners involving US resins that can’t be unwound. So, even if the extra tariffs go ahead, they may just become an extra cost of doing business.
Sticking with Europe as an example, even where US PE could be replaced by more imports from the Middle East and Asia, the continued Houthi disruptions to the Red Sea access to the Suez Canal may make this difficult.
There have been no suggestions that China will resume its 2018–2020 PE trade war with the US that saw import tariffs on US high-density PE (HDPE) and linear-low density PE (LLDPE) rise to 34% from 6.6% (see further details below).
But, of course, people are wondering whether this could happen and what it would mean.
Again, though, might any such rise in China PE tariffs just lead to a reshuffling of trade flows with no major losses incurred by the US, as occurred in 2018–2020? And/or might the US cost advantage help cancel out at least some of any rise in Chinese tariffs?
Or, as I said at the beginning, the US may conclude overall trade deals with the EU, China, Canada, Mexico, etc. (it is a long etc.) as tensions cool. US PE and other exports may thus not be subject to additional tariffs.
This is one way of looking at things in an ever-more muddled world. The other way is that we are heading towards a long-term shift in the American relationship with the rest of the world, driven not just by trade wars but also by the new US approach to defence, security, foreign aid, and the struggle against climate change.
Note, I am trying to avoid the politics here. In a world of extreme passions, I am trying to keep emotion out of this discussion to help us think calmly so we can plan for a range of scenarios.
On the “long-term shift scenario”, you might argue that this didn’t happen during the last trade war, so why should it happen on this occasion? Or you may contend that this Trump administration is very, very different.
2017 versus today: The more that things change?
Interestingly, back in October 2017, during the last trade war, I suggested the following in a blog post (the more that things change, the more they stay the same?):
- The Trump administration is holding out on a capital increase for the World Bank unless it changes the way it lends money to China. Since China is the Bank’s biggest borrower, this has created friction—and an opportunity for China’s AIIB (Asia Infrastructure Investment Bank) and OBOR (One Belt One Road) strategy to gain more ground in the emerging world.
- The World Bank had highlighted a massive gap in global infrastructure investment, estimating emerging markets could absorb around $2 trillion annually—double what they currently receive. This presents a major opportunity for Western governments and investors, echoing the post-WWII Marshall Plan.
- At the same time, the US is threatening to pull out of NAFTA and increasing tariffs across sectors—jets, steel, aluminium, washing machines—while also investigating China’s IP practices. These moves signal a shift toward protectionism and potential realignment in global trade alliances.
- China, already ramping up its OBOR programme, could respond to deteriorating US trade relations by deepening ties with OBOR countries. This would help it secure critical imports (like energy and food) and create new demand for its exports—essential to support its economic growth and reforms.
- In petrochemicals, the impact could be significant. For example, 60% of global demand for LLDPE in 2018 was within OBOR countries. China could look to source more LLDPE from OBOR partners and invest in regional self-sufficiency to reduce reliance on US imports.
Events have moved on, of course. For example, NAFTA has been replaced by the United States-Mexico-Canada Agreement, which is itself now under threat.
The Chinese economy is in a very different place than in 2017. The late 2021 collapse of the real-estate bubble and ever-worsening demographics have made China more reliant on exports. In the event of a full-blown and long-term trade war with the US, China could build much bigger alternative markets for its manufacturing, through the AIIB and the OBOR.
In 2024, China’s net exports contributed approximately 1.515 percentage points to its GDP growth. This marks a significant shift compared to the previous year, 2023, where net exports had a negative contribution of -0.600 percentage points.
Europe and the “confidence” thing: defence and fiscal expansion
The EU wasn’t mentioned at all in my October 2017 post because the longstanding US-EU geopolitical alliance was still very firmly in place. We are also in a very different place regarding the US approach to Ukraine than in 2022–2024.
Three weeks ago, a “watershed moment” occurred in Europe, according to The Guardian. European leaders, meeting in Brussels, agreed to a massive increase in defence amid a drive to shore up support for Ukraine.
Germany was poised for a major fiscal shift following the election victory of Friedrich Merz’s CDU alliance, according to UBS analysis.
The proposed plan—pending approval—would unlock €500bn for infrastructure and exempt defence spending over 1% of GDP from strict budget rules. If enacted, it could lead to a cumulative 20% increase in government spending over the next decade, making it the country’s largest fiscal expansion in 80 years, the bank added.
While the spending would only gradually impact the real economy, it signalled a strong pro-growth agenda that could lift both domestic and Eurozone-wide sentiment. UBS noted this may raise growth forecasts for Germany and help offset external risks like potential US tariffs.
Could this mark a major turnaround in that great intangible, confidence? A more economically prosperous Eurozone with its own nuclear umbrella and much stronger defence capabilities in general might pull further away from the US – perhaps moving closer to China.
Let’s bring this back to the ICIS data
All of this is speculation, of course. None of us have a clue, further underlining the need for a wide range of deep and constantly updated scenarios.
We can start building these scenarios by looking at something very concrete: the ICIS data on US LLDPE exports. We of course have the same data for HDPE and low-density PE (LDPE), but here let’s just focus on LLDPE.
The chart above shows estimated sales turnover for US LLDPE exports during these two periods: The 37 months from January 2022 until January 2025 and the 37 months immediately before this period – from December 2018 until December 2021.
I chose these two time periods because 2018–2021 was a very different world economically and geopolitically. This was before China’s Evergrande Turning Point in late 2021, which brought the Chemicals Supercycle to an end, and the February 2022 Russian invasion of Ukraine.
In this old world, China’s economic growth was much stronger and its self-sufficiency in PE much lower. Europe’s energy costs were 3–4 times lower than they are today, before the Russian invasion.
This meant that the US ethane cost advantage became much more important in 2022–2025, enabling it to make gains in Europe, China and elsewhere.
Here is another critical factor: In February 2020, 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%.
This brought the earlier US-China PE trade war to an effective end.
These waivers led to a big increase in US PE exports to China which we will quantify in tonne later-on.
First, let me further explain the above chart. It was compiled as follows:
- 2018–2021 LLDPE export data from US Customs in tonnes were multiplied by the average bagged US Gulf Coast FOB export prices per tonne for US C4, C6 and C8 grades of LLDPE.
- The same exercise was then done for 2022–2025. The 2018–2021 numbers were then subtracted from the 2022–2025 to show net gains and losses on sales turnover.
- The chart shows the top ten destinations where the US made the biggest gains in 2022–2025 versus 2018–2021 in millions of dollars.
- China led the way. In billions, the US was $2.5bn ahead in China followed by Mexico at almost $1bn and Brazil at $0.9bn. Europe together (Spain and Italy) represented a gain of $0.5bn.
Let’s now consider the table below showing US exports in tonnes to these same top ten destinations.
As you can see, the US market share gain in China was huge. Exports surged to 3.3m tonnes from 1.1m tonnes. Exports to Mexico rose to 2.6m tonnes from 1.8m tonnes.
The text at the bottom of the table, repeated here, provides some important further context:
- Total US exports to all destinations in 2018–2021 were 15.7m tonnes versus 21.7m tonnes in 2022–2025. 2018–2021 prices averaged $1,090/tonne FOB USG versus $1,111/tonne FOB USG in 2022–2025.
- China accounted for 36% of the total 2022–2025 sales turnover gain ($6.8bn) followed by Mexico and Brazil, each at 14%, and Europe at 7% (Spain and Italy).
Conclusion: The $6.8bn risk
This headline data point – the total estimated US LLDPE sales turnover gain in 2022–2025 versus 2018–2021 – highlights what could be at stake here.
Will US LLDPE exports in tonnes and therefore sales turnover decline over the next 37 months in the event of increased import tariffs? We can of course check the effects of any rise in tariffs every month from now on.
To what extent might such a realignment benefit other major exporting regions and countries such as the Middle East, South Korea, Malaysia and Thailand? We can use the same approach as above to every month check on whether they are making any gains in tonnes and in sales turnover.
Or, as I described at the beginning, might this be much ado about nothing because any increases in tariffs are counteracted by other economic and trade-flow factors? Or because trade tensions ease as a result of deals being done?
Are we instead, though, heading for a fundamental realignment of the world, economically and geopolitically, to one of the US and its partners versus much of the rest of the world?
This latter outcome would have serious consequences for a US PE industry where some 50% of production is accounted for by exports.
We are in a world of muddle, confusion and many shades of grey. ICIS data and analysis can provide clarity through scenario planning.