INSIGHT: US-China Trade War 2.0 to massively disrupt petrochemical trade flows

NEW YORK (ICIS)–It is now a full-blown trade war between the US and China with the launch of massive salvos of tariffs and retaliatory tariffs, far exceeding levels during the first US-China trade war which started in 2018.

Trade flows are set to be disrupted in a big way, resulting in a seismic shift in the global chemical industry.

The US implemented additional 84% tariffs on imports from China on 9 April – a 34% reciprocal tariff announced on 2 April, and another 50% in response to China’s initial planned retaliation of 34% tariffs on imports from the US.

With the earlier 20% tariffs on China implemented in February (+10%) and March (+10%), the additional US tariffs on imports from China jump to 104%.

The US escalation against China brings the US effective tariff rate to 29.4%, the highest level since 1890 during the McKinley administration, pointed out Kevin Swift, ICIS senior economist.

Since 2 April, dubbed ‘Liberation Day’ by US President Trump, the US claims over 50 countries have reached out for negotiations.

“It’s been a week, and this is causing real damage to the economy. Credit markets starting to show signs of stress,” said Swift. “We are increasingly concerned as this continues to play out with no sign of resolution.”

The ICIS economist sees a 34% probability of a recession in the US economy in the next 12 months but adds that “the risk of recession is rising every day this goes on”.

US PE, EG EXPORTS TO CHINA
China plans to retaliate against the retaliation, upping the tariff ante by another 50% and bringing tariffs on US imports to 84% if implemented on 10 April.

US exports of polyethylene (PE) and ethylene glycol (EG) to China can fully be expected to grind to a halt.

Since 2018, the start of the first US-China trade war, US ethylene, PE and EG exports to China have exploded more than four times to over 3.5 million tonnes in 2024, with PE at around 2.4 million tonnes – more than three times the volumes in 2018, according to the ICIS Supply and Demand Database.

US PE exports to China accounted for between 15-20% of total US PE exports, depending on grade. US EG exports accounted for over 30% of total US EG exports.

“There is no other market that can absorb as much EG as China. There could be some reshuffling, but not complete substitution,” said Antulio Borneo,  vice president and Americas olefins lead analyst at ICIS.

Even with China’s initial planned retaliatory tariffs of 34%, “US PE margins go negative at current production costs,” said Harrison Jacoby, director of PE at ICIS, who noted that US PE exports overall have been down 8.1% year to date.

While US PE exports could shift to Europe, the EU is planning retaliatory tariffs against the US, with PE initially among the targets.

In retaliation for US 25% tariffs on steel and aluminium imports that took effect on 12 March, the EU approved a new round of tariffs on imports from the US on 9 April.

The initial list of proposed tariffs released in March included high density PE (HDPE), linear low density PE (LLDPE) and low density PE (LDPE), along with a range of plastics and rubber products.

The EU tariff levels percentage levels reportedly range from 10-25%, with one set of tariffs to go into effect on 15 April and another on 15 May, according to media reports.

On 9 April the US implemented 20% tariffs on imports from the EU as part of its broad reciprocal tariffs.

The US is also a major exporter of PE to Europe. In 2024, the US exported nearly 1.5 million tonnes of LLDPE, over 500,000 tonnes of HDPE, and around 150,000 tonnes of LDPE to the EU; representing around 19% of total LLDPE exports, 11% of total HDPE exports and 8% of total LDPE exports, according to the ICIS Supply and Demand Database.

US PE exports to the EU in 2024 were almost 1.5 times higher than in 2018.

Total US PE exports to China and Europe comprised 32% of total US PE exports in 2024.

The US is a major importer of methylene diphenyl diisocyanate (MDI) with China and the EU as major suppliers.

With 104% tariffs on China, the US will not see anything close to the 229,000 tonnes of MDI imported from China in 2024, which accounted for 57% of total US MDI imports, according to the ICIS Supply and Demand Database.

CHINA EXPOSURE
UBS analyst Joshua Spector on 9 April highlighted publicly traded US chemical companies’ exposure to China.

Those with a meaningful percentage of sales from China include Methanex (22%), Celanese (19%), DuPont (19%), Huntsman (18%), Eastman, Axalta Coating Systems, PPG (all at 11%), and Celanese and Dow (both 10%).

“Chemical demand in China is typically about equal to US and Europe combined. China is overall a net importer of petrochemicals but an exporter of several coal and mineral-based chemicals (including caustic soda and titanium dioxide), and often several niche chems (rare earth chemicals, pesticide ingredients, etc) that are small but critical to many chemicals,” said Spector.

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Infographics by Yashas Mudumbai

Insight article by Joseph Chang