Commentary: US launches 3rd round of tariffs on China imports but blunts impact on chemicals

20 September 2018 20:42 Source:ICIS Chemical Business

With the third round of US tariffs on $200bn in Chinese imports, the US is launching another phase in the US-China trade war. However, it is mitigating some of the impact by excluding a number of chemicals in the final list and setting a lower initial tariff rate.

The revised final list will initially have a tariff rate of 10% versus the 25% previously considered. In it, 142 chemicals and finished plastics (just two finished plastics) were removed compared with the preliminary list, according to an analysis by the American Chemistry Council (ACC). The two finished plastics categories removed are plastic gloves – seamless and otherwise.

This third round will be implemented on 24 September, and the duties are set to rise to 25% by 1 January 2019 if there is no agreement on trade with China.

The final US round-three list includes a total of 1,363 chemicals and plastics products, of which the US imported $12.9bn worth from China in 2017, noted the ACC in its analysis of US International Trade Commission (ITC) data. As the original list included 1,505 chemicals and plastics products valued at $16.4bn, the value of the imports from China of the removed products in 2017 was $3.5bn.

At a tariff rate of 10%, this equates to $1.3bn in tariffs that would be collected by the US government, based on 2017 levels of imports. At 25%, this rises to $3.2bn. However, future imports of these products could fall significantly, reducing the actual amounts collected.

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The ACC analysis includes HTS (Harmonized Tariff Schedule) code chapters 27 (only select chemicals from this list), 28 (inorganic chemicals), 29 (organic chemicals) and 31-39 (fertilizers, dyes, extracts, surfactants, finished plastics, etc). It excludes chapters 30 (pharmaceuticals) and 40 (rubber products).

The greatest impact of the US round 3 tariffs will be on finished plastics (chapter 39) imports from China – about $5.6bn worth from 2017 trade figures, according to the ACC. Organic chemicals come in second at $2.8bn.

PARAFFIN WAX REMOVED

For the most part, the products removed from the final list do not include bulk chemicals and plastics resins covered by ICIS, with the exceptions of vinyl chloride monomer (VCM) and paraffin wax.

The US imported just 829 tonnes of VCM from China in 2017 (all US VCM imports were from China), while it imported 98,876 tonnes of paraffin wax from China, or 59% of total paraffin wax imports of 168,781 tonnes from all countries, according to ITC data. In dollar amounts, the US imported $126.5m in paraffin wax from China in 2017, or 55% of total imports of $231.3m. The dollar amount for imported Chinese VCM came to just $0.96m.

Also removed are five groups of rare earth elements used in fluid catalytic cracking (FCC) units, which produce gasoline and refinery-grade propylene.

In terms of bulk chemicals and polymers, US exports to China are far more impacted than China in both the second and third rounds.

The first round of US tariffs on $34bn Chinese imports implemented on 6 July was at 25% but included no chemicals or finished plastics. The second round of 25% tariffs on $16bn of Chinese imports set on 23 August included $2.2bn of chemicals and finished plastics.

Across all three rounds, the US tariffs cover 1,516 chemicals and finished plastics, representing $15.1bn in imports from China in 2017. China’s final list of third-round retaliatory tariffs on $60bn of US imports did not change from the original, but the rates were significantly reduced to 5-10% versus 5-25%.

NUCLEAR OPTION

But that is not likely to be the end of it. US President Donald Trump reiterated his threat to impose additional tariffs on $267bn of Chinese imports. This would encompass almost all US imports from China.

This fourth round, what we dub the “nuclear option”, could exclude the products already removed in the third round as those were deemed too important for US commerce. Yet anything is possible in this unprecedented trade war between the world’s number one and two economies.

Additional reporting by Will Beacham

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By Joseph Chang