Houston — The American Chemistry Council's director of international trade Wednesday asked the Trump administration to remove all chemicals and plastics from a $16 billion list of tariffs on Chinese goods awaiting implementation, saying the US chemical industry will suffer while China strengthens its competitive edge.
"Costs in the US will go up, not just for our member companies, but also the downstream industries that buy US-made chemicals, including farmers and manufacturers," Ed Brzytwa, also a former negotiator with the Office of the US Trade Representative, said Wednesday in prepared remarks for the second day of USTR public hearings on the issue in Washington.
"These tariffs will weaken the competitiveness of the US chemicals industry and the US as a whole," he said.
Brzytwa referred to a list of $16 billion in tariffs on Chinese goods that the US aims to impose, the second round of $50 billion in tariffs on top of those for steel and aluminum imposed in March.
The first round of $34 billion in tariffs on Chinese goods was implemented on July 6, and China responded with tariffs on US goods of equal value, largely agricultural crops and automobiles.
The second round of $16 billion in tariffs would involve chemicals and plastics made with them, and China has released a more chemical- and plastics-heavy list of retaliatory tariffs of the same value that would be implemented in response.
President Donald Trump has also announced plans to impose an additional $200 billion in tariffs on Chinese goods that also includes a slew of chemicals and plastics, but that list cannot be implemented before September, to allow for its own round of public comment and hearings.
The US chemical industry trade group has strongly opposed any tariffs involving chemicals amid escalating US-China trade tensions, particularly in light of $194 billion in announced investments in chemical manufacturing.
Bountiful cheap US ethane prompted chemical manufacturers to commit to building a slew of steam crackers and derivative plants along the US Gulf Coast, Pennsylvania and potentially Ohio, and the first wave of such plants began starting up in 2017.
So far three of these crackers are operating and five more will follow suit through 2019, including the imminent startup of ExxonMobil's new 1.5 million mt/year cracker in Baytown, Texas, near Houston. Of the 13 polyethylene plants starting up in the same span, seven are operating and six more will come online this year and next.
A second and potential third wave of newbuild crackers and derivatives plants are on tap for 2020 and beyond, including Shell's complex in western Pennsylvania, the first of its kind in the ethane-rich US Northeast.
Most if not all the new resin output from the waves of new infrastructure will be exported, and most of that will target Asia, largely China.
But if China retaliates with tariffs on US chemicals and resins as expected, the US will lose the edge it gains from cheap ethane compared with the more costly naphtha that feeds most Asian crackers.
"Due to shale gas and lower costs to produce and export chemicals, US chemical manufacturers are competitively advantaged compared to Chinese producers if there are no US tariffs and China does not retaliate," Brzytwa said.
He added that such retaliation would make it prohibitive to supply China's "large and growing demand for chemicals."
The $16 billion US list of tariffs targeted for Chinese goods includes lubricating oils, multiple grades of polyethylene used to make plastic bags and food packaging, expandable polystyrene used to make foam food containers and polypropylene used often in automobile plastics. US receipts of such chemicals from China are minimal, but the list also targets plastics made with them, the likes of which fill big-box store shelves.
China's list of $16 billion in US goods that would face retaliatory tariffs includes export-reliant resin and chemical feedstocks, such as resin produced by all the newbuild infrastructure that is turned into finished products overseas.
"We believe China may have targeted US chemicals exports because it is an area where the United States is poised to grow the most," Brzytwa said. "That China has included these products on its tariff list is a recognition of the competitiveness of the US chemicals industry and the challenge it poses to China's own fast-growing chemicals industry."
