As the end of August approaches, and with it the promise of the next round of US tariffs against $200bn of Chinese imports, more casualties are mounting in the world of chemicals and beyond.
The impact on M&A is being felt as China shows it is willing to slow or block deals involving US companies and targets around the world. This week China blocked a $44bn attempted takeover by US technology group Qualcomm of Dutch semiconductor group NXP.
Trump and Juncker progress while China retaliates
Back in May, just before President Donald Trump announced China tariffs, Qualcomm lawyers had visited Chinese regulators and felt sure the deal would be passed. Now it has been scuppered in a move seen to be directly linked to trade war tension.
Although US-headquartered, Qualcomm is a global company with 13 offices in China while its target, Dutch-headquartered NXP, has offices in 14 Chinese cities. This is why the deal required Chinese approval. US chemical companies with China operations which are considering M&A with other global groups may be feeling nervous that their deals could face the same fate.
CHINA PP TAKES A HIT
Exporters of goods from China, which are on the list of targets for the next round of tariffs, are shying away from accepting orders from the US. As our cover story this week highlights, this is lowering demand for polypropylene (PP) within China from converters which usually target the US market.
It takes more than a month for goods to travel by sea from China to the US. Chinese convertors who accept US orders now fear their deliveries will have the new 10% duty slapped on them upon arrival at US ports. They would then be forced to lower their prices, pay the tax or risk the goods stockpiling, unsold, in US docks.
China’s PP sector could be hit hard indirectly in this way as the tariff list includes many items which contain PP in packaging, parts for electronic goods and carpets. This is on top of the direct hit on PP, as it is singled out when imported as yarn, tow, fibre and twine.
ACC APPEALS TO STATE
The American Chemistry Council (ACC) has stepped up its lobbying, telling the Office of the United States Trade Representative that the failure to exempt $2.2bn worth of chemicals from the second list of tariffs risks losing thousands of US jobs and billions in chemicals investments.
Ed Brzytwa, the ACC’s director of international trade, said the unique low-cost position of the US afforded by shale gas could be undermined by the tariffs and potential retaliation by China.
In a sign that Trump is perhaps listening to the growing chorus of discontent among US business leaders and politicians, his meeting this week with European Commission President Jean-Claude Juncker appeared to be successful. Both sides agreed to start talks on cutting trade barriers and tariffs on all industrial goods, excluding cars. The threat of a 25% tariff on cars was put on hold.
The discussions included a commitment to discussions on standardising standards and improving cross-Atlantic chemicals trade.