China's suspension of specialty polymer tariffs continues trade thaw

Author: Al Greenwood

2019/12/19

HOUSTON (ICIS)--China's suspension of tariffs on a limited number of specialty US polymers continues the thaw in the countries' trade tensions that started earlier this year.

China's Ministry of Finance announced earlier on Friday that it was adopting a one-year suspension on retaliatory tariffs that it imposed on six US products. The rate of these tariffs was 25%, and China announced them in the early days of the trade war in June 2018. They went into effect in August 2018.

The suspension takes effect on 26 December, and it will last until 25 December 2020.

The following table shows the products that will receive the suspension.

HTS Code Product description
27101999 white oil, colourless transparent oily liquid composed of liquid hydrocarbon mixture, obtained by fractional distillation of crude oil. Commodity composition is 100% white mineral oil, the product viscosity is 65mm2 / s at 40 ℃, flash point is 225 ℃, pour point is -10 ℃, specific gravity  (20℃/20℃) at 0.885)
27129010 Food grade microcrystalline paraffin, corresponding indicators to meet the requirements of "Food Grade Microcrystalline Wax" (GB22160-2008)
39012000 Metallocene high density polyethylene, density 0.962g/cm3, melt flow rate 0.85g/10min
39014010 Adhesive (an ethylene-propylene copolymer with 65% ethylene and 35% propylene with a specific gravity of less than 0.94)
39014020 Linear low density copolymer of ethylene and 1-octene
39021000 Copolymer impact grade polypropylene, melt index MI <0.5g / 10min, UL certified yellow card RTI (equivalent to long-term working temperature) 115 ℃, notched Izod impact strength (measurement method ISO 180): 64KJ/m2 at 23 ℃ , 4.0KJ/m2 at -40 ° C

Source: Ministry of Finance

Although the harmonised tariff schedule (HTS) codes signify commodity polymers, the descriptions show that the exemptions cover very specialised products.

TENSIONS CONTINUE TO EASE

While limited, the suspension does mark another example of the thaw in trade tensions that started late in 2019.

In August, the US said it would delay some of the tariffs it planned to impose on a new batch of Chinese imports.

On 11 September 2019, China said it would exclude 16 products from additional tariffs.

The next day, the US agreed to delay some of the increases in existing tariffs that it intended to impose in October. Mid-month, it scrapped the increases entirely as part of a truce the two countries announced.

That truce was described as the first part of a multi-phase deal.

On 13 December, the two countries announced that they reached an agreement on phase one of that larger trade agreement. The US and China abandoned plans to impose tariffs later in the month. They also agreed to draft and sign a final phase-one agreement at a later date.

Meanwhile, China's Ministry of Finance said it will continue the work of excluding products from tariffs. It will announce the second batch in due course.

CHINESE IMPORTS OF US POLYMERS FELL AFTER TARIFFS

Although China's suspension covers very specific products, those products fall under much larger categories that took a big hit after China introduced the tariffs.

The following tables show these larger categories. According to the announcement from the Ministry of Finance, many of the products under these larger categories are still under the 25% tariffs. The figures cover Chinese imports of US goods from January-October 2019.

HTS Code Product KG Yuan
27101999 Other heavy oils; prep. of petroleum/bituminous mineral oils v. ≥70%, without biodiesel 3,490,308 59,607,049
27129010 Macrocrystalline petroleum wax 1,108,121 21,970,743
39012000 Polyethylene having a specific gravity ≥0.94, in primary forms 79,070,183 620,433,901
39014010 Ethylene-propylene copolymers having a specific gravity <0.94, in primary forms 1,329,314 25,298,160
39014020 Linearity low density polyethylene having a specific gravity <0.94, in primary forms 94,564,687 714,805,018
39021000 Polypropylene, in primary forms 12,244,420 203,816,931

Source: Chinese customs

The second table shows the same statistics for January-October 2017, before China and the US began imposing tariffs on each other. It illustrates the effect that the tariffs had on trade between the two countries.

HTS Code Product KG Yuan
27101999 Other heavy oils; prep. of petroleum/bituminous mineral oils v. ≥70%, without biodiesel 4,719,917 75,618,535
27129010 Macrocrystalline petroleum wax 2,318,675 47,472,357
39012000 Polyethylene having a specific gravity ≥0.94, in primary forms 269,950,420 2,128,459,266
39014010 Ethylene-propylene copolymers having a specific gravity <0.94, in primary forms 605,063 9,302,482
39014020 Linearity low density polyethylene having a specific gravity <0.94, in primary forms 106,814,354 887,812,725
39021000 Polypropylene, in primary forms 98,344,551 847,450,141

Source: Chinese customs

The Chinese tariffs had a significant effect on US exports, according to the ICIS Supply & Demand Database. The following chart shows US exports of HDPE, LLDPE and PP to China in January-October of 2017, 2018 and 2019. Figures are in tonnes.

US exporters were able to find new markets to replace the business that they lost in China.

However, trade flows do not change on the drop of a dime. Finding new markets take time and money. Moreover, those new markets may be less ideal than China was before the tariffs. Those new markets could have their own barriers to trade, whether they are logistical, tariffs or regulatory.

China imposed the tariffs just as the US was adding new polymer capacity. The influx of new material by itself would have pressured margins. The tariffs added even more pressure.

Nor were these the only tariffs. Both countries have levied duties on hundreds of billions of dollars of each other's exports. Taken as a whole, these and other new tariffs acted as a global tax that contributed to the economic slowdown already taking place around the world.

A one-year suspension of tariffs on six specialty items will not contribute much to the global economy, but it will provide some relief and point to a further loosening of trade tensions.

Focus article by Al Greenwood
Additional reporting by Fanny Zhang
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