LONDON (ICIS)--Most economists agree that there are no winners in a trade war. Tit-for-tat measures harm global trade and prices rise for business and consumers. The direct impact of higher chemical tariffs may not be obvious for consumers but will be for the users and processors of those products. Tariffs help slow growth.
It was clear from the start that chemicals might be swept up in the heightened trade tension between the US and China. Chemicals exporters in the US had every right to be concerned and they face the consequences now of the potential imposition of 25% higher tariffs on imports of some basic chemicals and polymers into China.
There is a potential, significant, knock-on impact, too as China targets planes, automobiles and imported agricultural produce. The three highest US exports to China hit by the proposed tariffs increases are planes, soybeans and cars.
The speed with which China hit back at the US, which declared on Tuesday that it would target 1,330 products including pharmaceuticals and agrochemicals imported from China, has surprised many. And it is a question now of what the US admiration does next.
“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US,” President Trump said on Wednesday morning. “Now we have a Trade Deficit of $500bn a year, with Intellectual Property Theft of another $300bn. We cannot let this continue.”
For so many industries, China had become the welcome source of growth in a global economy still suffering the after-effects of the 2008/09 crash. Of greatest concern for chemical and polymer exporters has been the slowdown in China’s once spectacular growth and the moves it is making in some commodities and other products towards self-sufficiency.
The US chemical industry has expressed its concern about any restrictions to free and fair trade as tensions between Washington and Beijing has mounted.
For a (US) petrochemical and polymer industry riding high currently and outwardly confident in its ability to export based on low-cost domestic fundamentals, rising trade tension between the two countries comes at the wrong time.
US ethylene capacity will rise by 39% by 2019 and US PE capacity by 42% by the end of 2019 and by a significant 77% by 2022. Most of the additional polyethylene produced will go to export with China a targeted, preferred destination.
Furthermore, heightened trade tension between the US and China has global implications. It hits physical markets just as talk has come round to global growth rather than recovery. And it hits financial markets that have responded sharply in the past few weeks to rising negative sentiment.
The transformation of rhetoric into concrete action, or, at least, statements of intent, will disturb the markets further.
Europe’s market were tracking lower on Wednesday after China laid out details of the products on which import duties would be imposed. US agricultural stocks, including DowDuPont were hit in pre-market trading.
The latest China imports to attract attention in the US were chosen in response to “China’s policies that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises,” the Office of the US Trade Representative, said on Tuesday.
“As the Chinese saying goes, it is only polite to reciprocate,” China’s embassy to the US said in a statement on Wednesday.
The US measures affect imports worth $50bn, the Chinese response, imports worth about $48bn. Petrochemicals and polymers, including lower density polyethylene (PE), that is low density polyethylene and linear low density polyethylene (LDPE and LLDPE), polycarbonate and acrylonitrile, feature in the China list.
How much further the Trump administration is prepared to go remains to be seen. But there is concern on Wednesday that the negative impact of the proposed measures on Wall Street and on specific exporters is being played against Trump campaign promises. As far as this president is concerned, promises made to the electorate are likely to win.
By Nigel Davis