The industrial development and production of chemical compounds stands out as one of the strongest sectors within the U.S. economy. According to the American Chemistry Council, this field accounted for $184 billion in American exports during 2015 – 14 percent of the country's export market. Through 2021, such exports are currently on pace to experience 7 percent growth each year.
Because of this considerable value the industry demonstrates, there exists no small amount of recent trepidation regarding the various hints in the news – and even more vociferous speculation in numerous financial and business circles – of serious trade disputes between the U.S. and a number of nations. China is most frequently cited among the nations in question by those with concerns about the chemicals industry. While Japan, Mexico and Canada are all prominent American trade partners, none are nearly as important to the U.S. as China in this field, with the Asian nation importing $3.2 billion in American plastics as recently as 2017, per the ACC. Those with direct and indirect stakes alike in the sector will want to closely follow the progress of these discussions.
The roots of the trade war
As pointed out by Chemistry World, the first signs of these trade disputes came at the end of 2018's first quarter, with President Donald Trump imposing tariffs on steel and aluminum imported from all over the world. After these duties went into effect March 23, China almost immediately threatened – but did not formally roll out – retaliatory tariffs on more than 100 U.S. exports. Nearly 40 percent of these items were chemicals, with a particular emphasis on specialty chemical substances and petrochemicals, plastics and petroleum products.
Chinese officials announced the first specific counterattack in this trading conflict April 18, with a tariff of 179 percent on American sorghum, which is typically used for ethanol production and as feed for livestock. (By contrast, Trump's steel and aluminum tariffs amounted to 25 and 10 percent, respectively.) The nation's Commerce Ministry claimed this move was a retaliation for the U.S. deliberately "dumping" low-priced orders of the crop on China to hurt the country's agricultural market.
Responding to this claim, Lindsay Walters, deputy White House press secretary, characterized China's actions as unlawful in a statement and attempted to shift the conversation to other markets over which the two countries have previously had conflicts.
"The president has made it clear that any further illegal trade actions by China are not acceptable, including the unfair targeting of U.S. sorghum producers," Walters said. "While we appreciate that China is recognizing longstanding U.S. concerns about discriminatory practice in the auto, ship and aircraft sectors, we await actual implementation of any policy change."
Possible adverse effects on U.S. companies
Within the U.S., major players in the chemical sector have already crunched some of the numbers regarding certain results of the steel tariffs and found that their business will experience the problems expected to be seen in other countries. For example, Dow Chemical, which had planned to build several new facilities in Texas, has claimed the taxes will increase building costs by $300 million and might locate the proposed plants in Canada or Argentina instead, according to The Economist.
Dow is not in any real danger, having expanded to even greater corporate dimensions through its $130 billion acquisition of DuPont just last year. But smaller firms, such as the petrochemical, petroleum and specialty chemicals producers in areas like southeastern Texas, could find themselves unable to execute development plans or repairs due to the metals tariffs. The Economist also noted that the American chemical industry's upswing is still fairly new, having only recovered from serious declines felt during the post-2008 global financial crisis several years ago. As such, any setbacks now could potentially halt that momentum.
The possibility of negotiation
In spite of the bluster arising from both sides of this trade dispute, officials from the U.S. and China have agreed to meet and discuss possible solutions to the impasse at which they currently find themselves. The World Trade Organization will oversee these talks, which China suggested and as yet do not have an agreed-upon start date but must begin by May 5. WTO spokesman Daniel Pruzin explained the situation further to Chemistry World.
"Now that the U.S. has accepted this consultation, they have 30 days from April 5 to sit down and meet, then they have 60 days from April 5 to reach an agreement and come to an understanding," Pruzin said.
Any breakdown of these talks or failure to meet the deadline could result in a WTO review of the situation. If the organization subsequently found the U.S. tariffs violate its policies, it would likely allow China to impose further sanctions on American trade.
