INSIGHT: US tariffs may persist as they become policy pillar

HOUSTON (ICIS)–The US government is coming to embrace tariffs as a central part of its economic and fiscal policies, a development that could see such measures persist and threaten margins for the nation’s chemical producers.

• Countries on the receiving end of US tariffs may retaliate by imposing duties on US exports of chemical and plastics.
• Such exports are vulnerable to retaliatory tariffs because of the magnitude of the US trade surplus in these products and because the world has excess petrochemical capacity.
• During his state of the union address, US President Donald Trump explained how tariffs are part of his strategy to increase the country’s manufacturing base.

TARIFFS FOR NEGOTIATIONS AND POLICY
The US already has used tariffs as a negotiating tool. In these cases, the tariffs went away once the US achieved its goals.

• Colombia agreed to accept migrant deportations after the US threatened to impose tariffs.
• The US agreed to a one-month pause on proposed tariffs after Canada and Mexico agreed to additional steps intended to address illicit drugs.
• The nation’s proposed reciprocal tariffs could conceivably be removed if countries remove their tariffs on imports or address what the US considers to be trade barriers.

Once tariffs become fundamental components of economic policy, it is likely that they will persist.

TARIFFS BECOMING KEY PART OF US ECONOMIC POLICY
During his state of the union address, Trump said manufacturers will add capacity in the US to avoid tariffs being imposed on their products.

While producers do not pay the tariffs, the duties do make their products more expensive than those made by domestic manufacturers. The foreign producers could lower their prices to offset the tariffs, abandon the market or add capacity in the US to avoid the tariffs.

The following lists some of Trump’s comments about tariffs and economic policy:

• “They will come because they won’t have to pay tariffs if they build in America.”
• “All that was important to them was they didn’t want to pay the tariffs, so they came, and they are building, and many other companies are coming.” (Trump said this after after discussing the plans by TSMC to invest $165 billion in the US.)
• “If you don’t make our product in America, however, under the Trump administration, you will pay a tariff, and in some cases, a rather large one. Other countries have used tariffs against us for decades, and now it’s our turn to start using them against other countries.”

USING TARIFFS FOR SECURITY AND REVENUE
An executive order from 20 January requested that Trump’s administration study the creation of an external revenue service to collect revenue generated from tariffs and duties.

During Trump’s state of the union address, he expressed concerns that the nation’s security could be threatened by its reliance on foreign supplies of aluminium, copper, lumber and steel.

“I have also imposed a 25% tariff on foreign aluminium, copper, lumber and steel, because if we don’t have, as an example, steel and lots of other things, we don’t have any military, and frankly we just won’t have a country very long,” he said.

US TARIFFS MAY BE HERE TO STAY
What’s significant isn’t whether tariffs achieve any of these long-term goals of raising government revenue, enhancing security or promoting economic growth.

What matters is that the US sees tariffs as a critical tool for achieving these long-term goals. Tariffs are not going away.

The tariff delays that the US announced on some imports from Canada and Mexico are not terminations. Once the delay expires, the US could impose the tariffs.

So far, the US is showing no signs of abandoning tariffs as a policy tool or backing down on the reciprocal tariffs that it plans to impose on 2 April on all imports. The reciprocal tariffs will consider duties as well as what the US considers to be nontrade barriers, such as value-added taxes (VAT).

“The reciprocal tariffs will go into effect on April 2, and he feels strongly about that. No matter what. No exemptions,” said Karoline Leavitt, White House Press Secretary. “He said they should get on it, start investing start moving, shift production here to the United States of America where they will pay no tariff. That’s the ultimate goal. ”

Insight article by Al Greenwood

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