ACC: More China tariffs will seriously hurt U.S. chemical industry

WASHINGTON—President Trump's latest round of proposed tariffs on $300 billion worth of Chinese imports, coupled with the earlier rounds totaling $250 billion, risk doing serious harm to chemical and plastics materials makers, the industry's leading trade group told a Washington hearing June 19.

In stark terms, the American Chemistry Council testified that continued tariffs would be the equivalent to "the biggest tax increase that U.S. chemical manufacturers have ever experienced."

"ACC holds the position that a prolonged trade war between the U.S. and China—in which chemicals being subjected to higher tariffs becomes a fixture, not an exception—could reverse the fortune of the U.S. chemical manufacturing sector," Ed Brzytwa, ACC director of international trade, testified at the U.S. Trade Representative hearing.

"Our industry's future growth depends on a strong U.S.-China trade relationship, full access to China's large and growing market, and a certain and predictable trade policy, not threats of more or higher tariffs," Brzytwa said.

The hearing, which includes more than 300 witnesses stretching over seven days, is organized by the U.S. Trade Representative as a fact-finding exercise as Trump considers putting 25 percent tariffs on $300 billion in Chinese imports.

That and the earlier $250 billion would cover the vast majority of imports from China.

ACC said the $300 billion round includes $8.5 billion in plastics and $2.5 billion in chemicals. Together with the earlier China rounds, $26.4 billion in chemical and plastics imports are or would be covered by the U.S. tariffs against China.

The plastics resin sector maintains a trade surplus with China—in contrast other plastics segments such as machinery and processing, which have a deficit—and ACC said materials makers worry about losing access to China's large market and harming the economic benefits from shale gas feedstock.

"The shale gas revolution has given U.S. chemical manufacturers unprecedented competitive advantage in producing high-demand chemistries at low cost and exporting them around the globe," he said. "The uncertainty created by the tariffs on U.S. chemicals imports, the artificial cost increases, and the resulting retaliatory tariffs on our exports are threatening investments and could all but nullify the historical gains our industry has witnessed over the past 10 years.

"For U.S. chemicals manufacturers, a prolonged trade war with China could cause the gift of the shale gas revolution to whither and fade, significantly undermining our industry's global competitive advantage," he said.

Brzytwa said in an interview after his testimony that other threats of tariffs against Mexico and against autos and auto parts also are troubling to the materials industry.

"Look at the potential for tariffs the administration threatened to levy on other products, on autos for example," he said. "We've very concerned about that. We've said that very publicly. We were very worried about Mexico tariffs because we export $23 billion a year in chemicals and plastics to Mexico and we don't want to see Mexico retaliate against us.

"It's the bigger picture of the use of tariffs as a tool that really would impact us competitively," he said.

A materials issue

ACC said plastics and chemical exports also face $11 billion in retaliatory tariffs from China, and those products saw exports drop 24 percent to China from December 2017 to December 2018.

One U.S. plastics maker, EMS-Chemie (North America) Inc., told the government that 25 percent tariffs on an input material it can only get from China will hurt its competitiveness.

The Sumter, S.C., based nylon maker said that nearly all of the world's production of dodecanoic acid, a nylon building block, comes from China, and including that in tariffs will make the company's nylons less competitive against Asian and European nylon makers.

In testimony, ACC also raised concerns about the Trump administration, including 114 chemicals and plastics products in this round, that it previously had removed from the $250 billion rounds of China tariffs last year.

Those 114 categories, which amount to $2.68 billion in imports from China in 2017, were removed from last year's tariff lists after the industry argued they were essential to U.S. manufacturing and should be excluded, ACC said.

"The administration's reversal on these products is surprising, injecting more confusion and greater uncertainty in the U.S. chemical sector," Brzytwa said.

In the interview, he said the U.S. government has not explained why those products are back on the tariff list.

"I can only imagine it's because they needed enough products to get to $300 billion," he said.

He told the hearing that significant numbers of the chemical products on the China tariffs previously had been identified as essential to U.S. manufacturing and exempted from tariffs under the Miscellaneous Tariff Act of 2018. That law was passed by Congress and signed by Trump in September, after a multiyear campaign.

Under the MTB process, another government agency, the U.S. International Trade Commission, and Congress determined that particular input products were crucial to U.S. manufacturing and should have zero or greatly reduced tariffs.

In its formal written testimony, ACC urged the Trump administration to give up on tariffs and instead work with allies like the European Union and Japan to address issues with China such as intellectual property protection and forced technology transfer.