US chem distributors face $1.277bn hit from latest tariff round

06 September 2018 21:23 Source:ICIS News

HOUSTON (ICIS)--US chemical distributors would face a cost increase of $1.277bn if the country moves forward with its third round of tariffs on imports from China, according to a trade group that represents the industry.

John Dunham & Associates had conducted an analysis of this third round of proposed tariffs on behalf of the National Association of Chemical Distributors (NACD).

If enacted, this latest round would impose a 25% tariff on $200bn in products imported from China, as proposed by the US Trade Representative (USTR).

In 2017, the US imported $5.109bn of chemicals and polymers from China, Macau and Hong Kong that would be subject to these tariffs, the study said. These represented 8.7% of the total US imports of these products.

Once freight and insurance charges are deducted, that would bring the product value of these imports to $4.857bn, the study said.

If a 25% tariff is imposed on this amount, that would represent a price increase of $1.214bn, the study said.

Once the transportation margin is added, that brings the cost to $1.277bn, which would be the increased cost facing chemical distributors, the study said.

The cost of the tariff would lead to a 5.3% increase on the price of chemicals if evenly distributed across the market, the study said. That amounts to an average of $18.69/ton ($20.60/tonne) or $20.69/ton at the purchaser level.

As prices rise, demand will begin to drop, the study said. It estimates that sales could decline by more than 7.22m tons (6.55m tonnes). For chemical distributors, this would represent a decline of 12% in sales.

This dynamic would result in a cascade of effects. As volumes decline, distributors would need fewer truck drivers, clerks and warehouse staff, the study said.

For chemical distributors, more than 5,900 jobs could be lost, the study said. The job losses could rise even higher once businesses that support chemical distributors are included.

The table below summarises the direct effects of the tariffs on chemical distributors as well as on supporting businesses.

Direct Supplier Induced TOTAL
Jobs 5,929 4,321 17,612 27,862
Wages $480,250,119 $272,883,552 $921,080,290 $1,674,213,960
Output $1,339,149,922 $770,555,024 $2,985,530,753 $5,095,235,698

“Placing a 25% tariff on hundreds of products NACD members import regularly from China will have a significant and negative impact on their ability to maintain growth and provide high-paying jobs," according to NACD president, Eric Byer. "While addressing China’s unfair trade practices is an important endeavor, we urge USTR to rethink their approach and use alternative measures to level the playing field without harming America’s job creators.”

Click here to view related stories and content on the US-China trade war landing page.

By Al Greenwood