As we head towards the 6 July deadline for the first round of US tariffs on $34bn in Chinese imports to the US, financial markets are getting skittish.
While senior managements of US chemical companies hope for the best, the risks are rising that a global trade fiasco could derail the momentum of a strong US economy underpinned by the shale gas energy and feedstock advantage, and boosted by the Trump tax cuts.
The turmoil hitting global equity markets finally reached the US, with Monday’s plunge taking down chemical stocks along with other sectors on trade worries. The US has a $25bn trade surplus in industrial chemicals with the world, which is only projected to rise further with new shale gas-based capacities coming on line.
However, many of these chemicals are in the crosshairs in the second round of tariffs from the US and China.
Chemicals will not be directly impacted in the first round of the $34bn in US and China tariffs starting on 6 July, but would presumably kick in at the second round of $16bn in tariffs at an unspecified later date.
We should fully expect negotiations to take place throughout the process – there is much to be played out.
Yet the sharp downward moves in equity markets in China and emerging markets are worth noting. The US chemical industry is not an island of shale gas-driven bliss without its key export markets, whether in China, Mexico or Europe.
For the US chemical sector, as well as the overall US economy, the key question to ask is: How much longer can the US prosper with other international markets in increasing turmoil?
The US Federal Reserve is hiking interest rates, putting pressure on emerging markets, adding another major headwind.
And the trade chaos from the US administration is only adding to uncertainty – not just among international players but with US producers.
The US is seeking better trade deals and is taking a hard line from a position of strength. It may yet achieve some success. But recognise the risks.