Trade War Deepens! Is Chemical Industry Ready for Impact?

US has recently announced additional 10% tariff on Chinese imports worth $200 billion to domestic market. This was followed when the US imposed tariff on $34 billion imports from china and Chinese authorities retaliated with 25% tariff on soybean imports from the US. The situation worsened within a week since first action taken by the US on Friday, 6 July 2018. Although the current tariffs are not directly impacting too much to the chemical business, the heat is expected to reach chemical market soon.

Background: There have been numerous concerns of Chinese market adopting unfair means to utilize the intellectual property rights of foreign companies for their manufacturing and trade benefits. Current US president, Mr. Donald Trump, a mercurial leader, came to power with promises of limiting China’s trade dominance to domestic market in the US. Since coming to power, there have been many instances, wherein the topic of American job-loss to cheaper availability of Chinese good came up and flares were exchanged. However, the tariff imposition was the first action aimed directly on China.

Exposure: China exported more than $500 billion worth products to the US in 2017. The majority of Chinese trade to the US is electronic equipment and machinery. On the other side, around $130 billion US exports to China includes predominantly agriculture products. Chemical commodities, of plastics and waste plastics make relatively smaller portion of these trade numbers. Yet, the chemical industry has high exposure in this relation, as the US and China are the biggest markets in chemical industry. The list of products issued by the US includes many chemicals including likes of petrochemicals of olefins, aromatics, glycols, acrylics, and acetals along with inorganic chemicals such as titanium oxide, and caustic soda.

Impact: The market analysts have estimated that these trade wars can add up-to worth more than $400 billion collective damages to both parties. These damages are expected to be borne by customers and suppliers not only in these two countries, but to stakeholder across the globe as moving dynamics shall cause high fluctuations in product prices. The manufacturers having exposure in the two countries have already started looking for potential alternative to minimize the possible losses. While all the global leaders are suggesting milder approach while looking for a softer alternative, the consumers can only hope for distant option of resolving the issue soon giving them some respite.

– Ankur Kalra,
Manager – Chemicals & Materials,
Infoholic Research