INSIGHT: Tariffs put US chemical exports at risk, but optimism on trade deals emerges on eve of implementation

NEW YORK (ICIS)–2 April 2025 – dubbed ‘Liberation Day’ by US President Trump – saw a sweeping and substantial salvo of reciprocal tariffs, with a baseline tariff set at 10% but for many countries, much higher customized levels.

The higher reciprocal tariffs are scheduled to come into effect on 9 April, with the baseline 10% tariff imposed on 5 April.

However, as of 8 April, there is emerging optimism on the potential for trade deals following comments from US President Trump that South Korea and China want to make a deal, and from administration officials that the US is in discussions with a number of countries.

The reciprocal tariff levels – which include 34% on China, 20% on the EU, 46% on Vietnam, 32% on Taiwan, 26% on India, 25% on South Korea and 24% on Japan – were very much higher than anticipated.

For China, 34% in reciprocal tariffs to come into effect on 9 April would be on top of the previous 20% tariffs the US implemented in February (10%) and March (10%), catapulting additional US tariffs on China this year to 54%.

Products that fall under US sectoral tariffs, such as 25% on autos and auto parts, in effect since 5 April, will be exempt from the reciprocal tariffs. Products flagged for upcoming sectoral tariffs – pharmaceuticals, semiconductors, lumber and copper – will also be exempt from reciprocal tariffs.

For Canada and Mexico, the US 25% tariff will remain in place, but only for non-USMCA (US-Mexico-Canada Agreement) compliant imports.

DIRECT IMPACT ON US CHEMICAL MARKETS
Tariffs will undoubtedly raise costs for the US chemical industry and its customers, in the form of logistics, feedstocks and components such as additives and catalysts.

For certain product chains where the US is self-sufficient, the direct impact should be somewhat limited.

For example, Canada is the dominant exporter of chemicals and plastics to the US, but these are primarily in the olefins chain – polyethylene (PE), polypropylene (PP), propylene and ethylene glycol (EG) – where the US is more than self-sufficient and a big net exporter. These should also be USMCA compliant and thus exempt from tariffs.

Even if there was a disruption, US producers in the US Gulf Coast could ship more volumes of ethylene and propylene derivatives domestically, replacing imports from Canada – although at higher logistics costs to some locations.

The aromatics chain is more complicated. The US is a large net importer of benzene, toluene, xylenes and paraxylene (PX) – the bulk of which comes from South Korea, which is being hit with a 25% reciprocal tariff. The EU also exports aromatics to the US and will be subject to a 20% tariff.

The US is a major importer of methylene diphenyl diisocyanate (MDI) with China and the EU as major suppliers. With 20% in additional tariffs imposed on all China exports in two stages – February (10%) and March (10%) – on top of the existing 25% tariff on China MDI, the US tariff on MDI from China is 45%. Adding the 34% reciprocal tariff brings this to a whopping 79% tariff level by 9 April.

US EXPORTS IN CROSSHAIRS FOR RETALIATION
The bigger risk to the US is for chemical and plastics exports. The US runs a chemical trade surplus of over $30 billion, according to the American Chemistry Council.

Already China has announced a 34% tariff on all US imports to go into effect 10 April, while the EU prepares €18 billion in tariffs that would go into effect 15 April. The latter, which is in retaliation for US steel and aluminium tariffs, includes US PE and other polymers and chemicals.

Even as the US is a much larger goods importer than exporter, particularly with China, it is the reverse for the US chemical industry, which will bear the brunt of the impact.

“US goods exports to China in 2024 were $143.55 billion. The US imports far more – $462.64 billion – but this will have an impact on the US chemical industry as we compete against producers in the Middle East and elsewhere in Asia,” said Kevin Swift, ICIS senior economist for global chemicals.

“This is the first large retaliatory challenge. Let’s hope it doesn’t devolve into a swirling beggar-thy-neighbor trade war,” he added.

The new China 34% tariff on imports from the US could result in a $34 billion falloff in US exports of all goods to the nation – about a 24% decline, according to an analysis by Swift.

Since 2018, the year that the first US-China trade war kicked off by the first Trump administration, US commodity chemical net exports have surged 88% to 2024, and are thus far more exposed to retaliatory tariffs than ever before.

During this period, US exports of commodity chemicals and polymers to the world have increased 28% while imports declined 5%, according to the ICIS Supply and Demand Database.

Top US chemical and polymers exports are linear low density PE (LLDPE), high density PE (HDPE), EG, polyvinyl chloride (PVC), caustic soda, methanol, low density PE (LDPE), vinyl chloride monomer (VCM), polypropylene (PP) and styrene.

If China puts an additional 34% import tariff on US PE, the economics for exports do not work, even with the substantial US cost advantage.

“With a 34% tariff on top of the current 6.5% tariff, US PE margins go negative at current production costs. US PE demand has been weak so far this year, particularly exports, down 8.1% year on year,” said Harrison Jacoby, director of PE at ICIS.

“We see rebalancing of trade – less US PE into China, more to Europe. The industry already saw the start of this trend in 2024, with more US PE shifting from China to Europe. Now we need to see how Europe reacts on 13 April with its proposed retaliation targeting US PE, if they will increase their current 6.5% duty,” he added.

In retaliation for US 25% tariffs on steel and aluminium imports that took effect on 12 March, the EU plans a new round of tariffs on around €18 billion of imports from the US, which includes high density PE (HDPE), linear low density PE (LLDPE) and low density PE (LDPE) along with a range of plastics and rubber products. This would be implemented in mid-April following a consultation period.

The US is also a major exporter of PE to Europe. Total US PE exports to China and Europe were 32% of total US PE exports in 2024, according to the ICIS Supply and Demand Database.

“The big picture is there are two low-cost PE regions that are the only net exporters – the US and Canada and the Middle East. These regions will continue to fill global production shortfalls, optimizing to mitigate the impact of tariffs,” said Jacoby.

However, demand growth is likely to fall as a trade war will only further weaken demand for all goods and services, he added.

Retaliatory tariffs on key US chemical exports could also have ripple effects throughout the chain.

For example, retaliatory tariffs on US PE could lower cracker operating rates, in turn reducing crude C4 (CC4) feedstock coming out of those crackers for butadiene (BD) production.

“I am concerned about impacts on our suppliers and customers. If there’s an impact on the ethylene industry which causes rate reductions because exports [of derivatives such as PE] get tougher, that would have an indirect effect on our supply of CC4s,” said Ed Dineen, CEO of BD producer TPC Group, in an interview with ICIS at the International Petrochemical Conference (IPC), hosted by the American Fuel and Petrochemical Manufacturers (AFPM).

HIT TO KEY END MARKETS
Key chemical end markets such as housing, automotive and durable goods will be burdened with higher costs with these reciprocal tariffs. Demand in these sectors has already been struggling for more than two years.

“The economic law of demand holds that as prices of a good rise, demand for the good will fall,” said Kevin Swift, ICIS senior economist for global chemicals.

US sectoral tariffs of 25% on steel and aluminium, in effect since March, will add nearly $1,500 to the cost of a light vehicle and result in lower sales for the automotive industry, he estimated.

This would push down sales by about 525,000 units if the cost is fully pushed through, said Swift. In addition, 25% sectoral tariffs on autos and auto parts will put further upward pressure on pricing, in turn lowering demand further.

The ultimate price impact, and not just for automotive, will also depend on consumer demand. It is likely the higher costs from tariffs will be shared by producers, suppliers and consumers.

Housing costs are also poised to rise, with sectoral tariffs on steel and aluminum, and signaled tariffs on lumber and copper, along with reciprocal tariffs that will cover other imported goods such as vinyl floors, furniture, carpets and appliances.

Consumer confidence is unlikely to improve anytime soon. The Conference Board’s consumer confidence reading in March for future expectations plunged 9.6 points, to 65.2, the lowest in 12 years. Inflation expectations for the next 12 months rose from 5.8% in February to 6.2% in March as consumers were concerned about high prices and the impact of tariffs.

One silver lining is that other countries may lower their tariffs and trade barriers in response to US reciprocal tariffs, opening markets for US exports and in turn leading to the US lowering its reciprocal tariff levels.

WALL STREET CUTS EARNINGS ESTIMATES
In the meantime, Wall Street is making sizeable cuts to US chemical company profit forecasts, with tariffs expected to squeeze margins in the form of higher costs as well as lower demand.

“Uncertainty over tariffs has weakened US PE/PP trading volumes and we expect shifts in trade flows to create near-term negative supply chain/production impacts, which could be negative for Q1,” said UBS analyst Joshua Spector in a 7 April research note.

“We are lowering estimates and price targets to better reflect a global [slowdown] that spills into 2026 and 2027,” said Jefferies analyst Laurence Alexander in a 7 April research note.

“While we could easily be proven wrong by a couple of tweets (either escalating further or shifting from dramatic action to symbolism, bluff and rhetoric), we are adjusting our framework to reflect the current state of policy,” said Alexander.

THE BIG PICTURE
Ultimately, US President Trump aims to engineer a “once in a hundred year pendulum shift” in the global economy and geopolitical order, said Rana Foroohar, global business columnist at the Financial Times, at the IPC hosted by the AFPM.

“Tariffs are for real. Tariffs are here to stay…Trump sees the global economy as a giant gaming table, with the US consumer market as the biggest chip to put down. And he is going to use it in ways we haven’t seen in half a century, if not more,” said Foroohar.

“This imbalance between Wall Street and Main Street – between the asset growth economy and the income-led economy – is really at the heart of what’s going on today…Cheaper is going away [and] place matters,” Foroohar added.

Visit the ICIS Topic Page: US tariffs, policy – impact on chemicals and energy

Infographics by Yashas Mudumbai

Insight article by Joseph Chang and Yashas Mudumbai