On the front lines of a trade war, U.S. chemical manufacturers home in on solutions
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What’s it like to be caught in the crosshairs of a global trade war?

It’s a question now frequently posed to U.S. chemical manufacturers, whose products – ranging from plastics to cosmetic ingredients – have become stratagems in the Trump administration’s effort to shake up the international trading system. That effort has produced a trade war.

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U.S. tariffs on imports from China and retaliatory tariffs by U.S. trading partners all target U.S.-made chemicals. 1,505 chemicals and plastics products, or 25 percent, of the $200 billion in Chinese imports the administration targeted recently for an additional 10 percent tariff are chemicals and plastics. The value of these imports from China was $16.4 billion in 2017.

Adding insult to injury, China is one of the U.S. chemical sector’s most important trading partners. China has threatened to retaliate against $5.4 billion in exports of U.S.-made chemicals and plastics. We fully expect to see additional retaliation against our industry as a result of the administration’s tariffs.

In addition to thousands of chemical products, nearly $90 billion in planned, steel-intensive, new chemical manufacturing facilities are also vulnerable to the administration’s tariffs and quotas on steel and aluminum. In fact, these tariffs are being implemented at the worst possible time for the U.S. chemicals industry.

In the early 2000s, the U.S. chemical sector was considered past its prime. The shale gas revolution changed all that, and now the industry is one of the most competitive, low-cost, and innovative producers of chemicals in the world. Over the past decade, U.S.-based and foreign chemical manufacturers have announced more than $194 billion in new investment in the U.S. to access its abundant and affordable supplies of U.S. natural gas, one of the building blocks of basic chemicals.

A typical world-scale ethylene cracker uses 18,500 tons of steel, so the increased price of steel from tariffs adds significant cost to these investments. As much as half of $194 billion in planned chemical industry investment could be vulnerable to delay or abandonment.

With the chemical industry caught in the crosshairs of a global trade war, what are we doing about it?

We are focused on telling our story. Focused on explaining why chemicals must be taken off the front lines of this trade war. Focused on finding ways to take advantage of the U.S. chemical sector’s unprecedented economic growth, export potential, and job creation. Focused on supporting recent legislative efforts designed to reinforce Congress’ constitutional authority over U.S. trade policy.

House Speaker Paul Ryan (R-Wis.) said earlier this month that he “hopes” the president’s endgame is “to rebalance, to get rid of tariffs, is to open up access to markets across the globe.” The President at the recent G7 meetings in Canada urged U.S. allies to eliminate their tariffs and non-tariff barriers. We support this shared vision for the elimination of trade barriers and increased access to global markets.

The U.S. economy alone cannot consume the increased chemical production resulting from the nearly $200 billion in U.S. chemical industry investment announced over the past decade. U.S. chemicals manufacturers will have to meet demand for chemicals in the rest of the world as well. We can help the U.S. grow its exports, create larger trade surpluses, and put more Americans to work.

We’re focused on setting the record straight. The U.S. unequivocally has benefited from rule-based international trading system. We built the World Trade Organization (WTO), its rules, and its dispute settlement system, and opened up new global markets. The U.S. chemicals industry was an early beneficiary when the U.S. and other major markets agreed to drop their tariff rates on chemicals to low levels.

Like any system that evolves over decades, it requires support and occasional reform. Most importantly, the WTO set the stage for the U.S. and its trading partners to address distortive practices, like the Chinese government’s policies on intellectual property.

ACC is committed to finding solutions. Therefore, we have identified several key opportunities to enact a better U.S. trade policy:

  • Build the coalition of U.S. trading partners to confront the Chinese government – together – on intellectual property practices and other trade distortive barriers to trade. The U.S. and its partners must be willing to leverage the WTO dispute settlement system to fully enforce the rules we helped create. 
  • Aggressively pursue bilateral negotiations with key trading partners. The U.S. government should seek a quick and beneficial conclusion to the NAFTA negotiations, address key shortcomings in the U.S.-Korea Free Trade Agreement, and pursue negotiations with other countries (like Brazil, India and Indonesia) where commercially meaningful market-opening commitments can be achieved. Forceful pursuit of bilateral negotiations by the Trump administration can help unleash powerful market forces that make supply chains more global and efficient, make goods and services more affordable for all countries, and supercharge innovation. Trade, investment, and global economic growth will then lift the poorest and most marginalized out of poverty and raise standards of living.
  • Identify the sectors where expansion, export potential, and American job growth are most likely, and seek market-opening agreements. For our part, chemical manufacturers believe a pro-manufacturing agenda should aim for zero tariffs between all major chemicals trading countries, as well as robust regulatory cooperation mechanisms that prevent non-tariff barriers to trade in chemicals.
  • Reinforce the value of the multilateral trade system. Letting the WTO and the multilateral trading system fall into disrepair or disappear is not in the economic or security interests of the United States. Such inattention would end globalization as we know it, decrease global economic growth and prosperity, and create unpredictable and harmful trade tensions across the world. That is a future that U.S. chemical manufacturers cannot support.

A tariff policy that threatens our allies, fails to address the root cause of trade-distortive practices, and props up uncompetitive industries, is not helpful. That is why the U.S. chemicals industry believes the U.S. must commit to finding a new path in trade policy.

Ed Brzytwa is the director of international trade at the American Chemistry Council and former negotiator with the Office of the U.S. Trade Representative.