The Charlottesville clash impact rippled across the US
The huge backlash from US business leaders in response to President Donald Trump’s remarks on the Charlottesville, Virginia protest and clash puts his business friendly agenda in serious doubt.
A rash of resignations by company CEOs and other leaders on the administration’s American Manufacturing Council and the Strategic and Policy Forum following what they viewed as an inadequate response to the violent clash between white supremacists protesting the planned removal of a statue of Confederate general Robert Lee, and counter-protestors, led to the dissolution of the councils. The clash led to one counter-protestor being killed and many others injured.
Nine members of the 28-member manufacturing group stepped down after the incident on 12 August while the Strategic and Policy Forum members made the decision to disband, before Trump announced the shutdowns.
Dow Chemical CEO Andrew Liveris was selected in December 2016 to head the manufacturing council. Liveris did not resign from the council but issued a statement condemning the violence in Charlottesville and noted that at Dow, “there is no room for hatred, racism or bigotry”. A month earlier, Dow introduced a new position of chief inclusion officer with Karen Carter at the helm, reporting directly to Liveris and president and chief operating officer Jim Fitterling.
US business leaders had high hopes for the Trump presidency, as he vowed to lower corporate and individual income taxes, slash regulations and boost infrastructure spending. While some remain optimistic that one or more of these reforms will one day come to fruition, the rapid abandonment by key leaders in the business community on the advisory councils leaves Trump’s business agenda in tatters.
The failure of health care reform had already put Trump’s remaining pillars of tax cuts and infrastructure spending on shaky ground. But one could also argue that Republicans in Congress will now be laser-focused on tax reform in a desperate bid to gain a legislative victory. Meanwhile, geopolitical uncertainty has only grown with the nuclear standoff with North Korea, US threats against Venezuela on military options and potential trade actions against China.
CHINA TRADE WAR RISK
Somewhat lost in the chaos of the aftermath of the Charlottesville incident is the Trump administration’s launch of an investigation into China’s theft of US intellectual property on 14 August. This could ultimately result in tariffs against Chinese imports into the US. China has threatened retaliation.
This becomes ever more important to the US petrochemical sector as it starts to ramp up an unprecedented wave of ethylene and derivative capacity expansions on the back of cheap shale gas. From now through the end of 2017, three worldscale ethane crackers and downstream polyethylene (PE) and other derivative units by Dow Chemical, Chevron Phillips Chemical and ExxonMobil Chemical are scheduled to start up.
A good amount of the PE capacity is targeted for export, with Asia, and China in particular a prime destination. More crackers and PE plants are set to start up in 2018-2019, with a 2nd wave poised to come on from 2020 onwards.
Any disruption in trade among the US chemical industry’s major trading partners – Canada, Mexico and China being the top 3 destinations for exports – will have a profound impact on prices and profitability.
When you’re spending billions of dollars over several years building massive amounts of capacity, export options are important to say the least.
The dissolution of the councils of US business leaders – groups encompassing the key players in the growth of the US economy – should be a blow to confidence in the long-term economic outlook. The whole point of the councils was for the President to gather the best and brightest ideas from business minds to reinvigorate the US economy.
While the US equity markets hover near record highs despite the widespread uncertainty, business leaders leaving their seats at the table in protest is an ominous sign.
Additional reporting by Stefan Baumgarten