- Chemical suppliers are taking hits from both sides of the U.S. trade war and mitigation tactics are running thin, according to Ed Brzytwa, the director for international trade at the American Chemistry Council.
- On the Trump administration's latest list of goods proposed for tariffs are chemicals relevant to agriculture, pharmaceuticals and personal care products. Across three earlier lists from the administration, chemicals represented $28 billion in tariffed imports, Brzytwa said.
- Few players in the chemical manufacturing space have escaped tariffs under the existing lists. But if any had avoided the duties until now, list four will likely put a stop to that, Brzytwa said, noting he and the industry are still sorting through the extensive register of $300 billion in proposed new tariffs.
Chemicals produced in the U.S. are suffering from higher cost of materials imported from China and the shrinking Chinese export market due to retaliatory tariffs. The U.S. exports $7.9 billion in chemicals to China.
Because of the nature of chemical manufacturing, producers don't have as much wiggle room to tweak their processes to change how their products are classified.
They also have a tougher time avoiding tariffs, compared to some other supply chains. Apparel manufacturers can, for example, make some garments in China to 95% completion and then finish production elsewhere to avoid tariffs.
Maneuvers like this are "a lot harder with molecules," Brzytwa said.
Furthermore, some rare chemical components can only be purchased from China. Chemical companies have therefore pursued tariff exemptions, and Brzytwa said that will likely continue with regard to the Trump administration's latest list.
"The mitigation strategies that our companies talk about aren't related to tariff classifications," he said. "They're about trying to figure out how to absorb the cost so they don’t have to pass it to the customer."
Chemical manufacturing is a global business, meaning major players have facilities around the world that can handle some shuffling. Smaller players, however, often lack vast networks of production facilities or diversified supplier options. As such, they may be particularly at risk from China's retaliatory tariffs, according to the Society of Chemical Manufacturers & Affiliates.
While chemical producers are working to keep extra costs away from their customers, consumers are already less likely to feel trade war pains. Linda Lim, professor of corporate strategy and international business at the University of Michigan, noted how chemicals are ubiquitous and often found in consumer products in very small quantities.
Industrial buyers of chemicals, however, may eventually see a price increase if mitigation strategies run out.
Some chemical manufacturers may choose to move production out of the U.S. to escape both the import tariffs on Chinese raw materials and the Chinese tariffs on their finished products, suggesting where the general public may feel chemical tariffs is in job losses. There are currently $204 billion worth of new chemical manufacturing plants in development in the U.S., according to the Houston Chronicle. If the mounting tariffs stick around, those may not look as attractive as they once did.
"Every time I talk to a member company, what I hear is we are going to have to make very difficult business decisions. We may have to let people go — may have to shut down production in the United States," said Brzytwa.
Matt Leonard contributed to this report.