VIDEO: AFPM ’17: Trump infrastructure plan is dead – consultant

BARCELONA (ICIS)–Donald Trump’s infrastructure plan is unlikely to be approved because of a legislative bottleneck, denying the US chemical sector a key source of demand growth to absorb the 4.5m tonnes/year of new polyethylene capacity due on stream this year, according to a chemicals industry consultant.

In a video interview, International eChem chairman Paul Hodges said that the US chemical sector will have to find innovative ways to stimulate domestic demand in the face of possible restrictions on global free trade in petrochemicals and polymers. The industry cannot rely on the infrastructure programme or President Trump’s strategy to re-shore industrial production to create enough demand growth, he added.

Speaking ahead of the American Fuel and Petrochemical Manufacturers’ (AFPM) conference, Hodges said: “The record of the last few administrations is that Congress can only deal with one topic at a time. At present there is a big battle going on over healthcare and that is getting in the way of tax reform, which was President Trump’s top priority. And as for infrastructure – his third priority – I can’t see Congress getting through three major programmes in the next 12 months.”

Hodges believes US presidents only really have the first year of their term to achieve major goals.  By 2018 the run up to the mid-term elections will make it very hard to achieve change. He points out that it took President Ronald Reagan until his second term to achieve his tax reforms.

“We have to assume infrastructure is dead. There is no magic wand to be waved and the industry has to look at self-help,” says Hodges.

However, he believes there are huge opportunities for innovative US chemicals and polymers in serving the water and food sectors with commodity and specialty polymers to help reduce waste.

The US has a major water shortage problem, says Hodges, and yet 30-40% never reaches the customer because it leaks out of the system. It also has a major problem with food where 30-40% is thrown away because it has not been kept properly. 

According to the consultant: “The industry has a fantastic opportunity to employ a lot of technical development people to work with the utility and food companies in order to stop that waste. You have to employ more people … or the product just won’t be sold – let’s get out there and do something to sell more PE and PVC into the water and food industries.”


Pessimistic on exports
The US has 4.5m tonnes/year of PE capacity coming onstream this year and more beyond that, nearly all of it targeted for exports. Hodges is pessimistic about the prospects for exporting the product, particularly in view of the likelihood of more barriers to international trade being erected.

He points out that the US has not been growing exports in recent years: PE net exports were down 5,000 tonnes in 2016 compared to 2015.

Hodges highlights the change in tone and attitude of President Trump compared with some of his predecessors who were champions of free trade and more open borders. 

“President Trump is completely reversing these policies. He talks about “America First” and Americanism, not globalism. He has cancelled the Tran-Pacific partnership and aims to change the North American Free Trade Agreement (NAFTA). The proposed trans-Atlantic trade partnership seems to be dead in the water.”

Hodges says protectionism could have a dramatic impact on the chemicals industry. He recalls how  30-40 years ago complicated and expensive trade tariffs and duties meant companies never thought about moving product around the world. It was just too difficult and expensive to do it.

“Today we think nothing of spending billions of dollars on a plant in a location with cheap feedstock in order to move that product half way around the world for $50 or $100 per tonne. All of that would have to stop, and I believe there is more than a 50% chance it will stop.”

Global supply chain impact
Global supply chains could alter profoundly, says Hodges, giving the example of Apple, which currently makes around half of all iphones in China. Components are shipped in from around 100 suppliers around the world.

“Vast amounts of petrochemicals and polymers will be used in those iphones. If President Trump insists all the new iphones are made in the US, what happens to all those supply chains? We just don’t know.”

However he doubts very much that enough production will be “re-shored” to absorb all the extra capacity coming onstream.

“The industry has been through many changes since the 1960’s so there is no reason to be pessimistic. There will be winners and losers with the losers being those who assume it will all blow over so they don’t need to act,” concludes Hodges.


Read Paul Hodges and John Richardson’s article “A ‘war of words’” in the 24 March issue of ICIS Chemical Business 

Paul Hodges and John Richardson, consultant at ICIS, are lead authors for the “War of Words” Report. This report focuses on key developments in the relationship between China and the US and how future trade and business policies are likely to impact the petrochemical markets globally and disrupt the “status quo” of steady economic growth. Please email enquire@icis.com.