chemical suppliers are working to keep extra costs away from their customers
Diving briefing:
Ed brzytwa, director of international trade at the American Chemistry Council, said chemical suppliers have been hit by both sides of the U.S. trade war and there are fewer and fewer mitigation measures. The chemicals in list 4 are related to food, beverage, agriculture, medicine, personal care products and many industrial applications. In the first three lists, chemicals account for $28 billion in import tariffs, brzytwa said.
Three of them include hundreds of taxes related to chemicals and chemical manufacturing. Under the existing tariff list, few enterprises can escape the tariff. But brzytwa said that if any companies have been evading tariffs so far, a fourth could stop that. He pointed out that he and the industry were still working on a huge list of proposed $300 billion in new tariffs.
Chemicals produced in the United States are being affected by the rising cost of raw materials imported from China and the shrinking export market caused by China's retaliatory tariffs. The United States exported 7.9 billion dollars of chemicals to China.
Diving insights:
Due to the nature of chemical production, manufacturers do not have as much leeway as other supply chains to adjust processes, change product classification and avoid tariffs. For example, garment manufacturers can produce up to 95% of the finished products in China and then complete production elsewhere to avoid tariffs.
Operations like this are "much more difficult for molecules," brzytwa said. In addition, some rare chemicals can only be purchased from China. Chemical companies are therefore actively seeking tariff exemption, brzytwa said, for the fourth part, this situation is likely to continue.
"The mitigation strategy our company is talking about has nothing to do with tariff classification," he said "They need to figure out how to absorb costs so they don't have to pass them on to customers."
Chemical manufacturing is a global business for global customers, so major enterprises have factories all over the world, which can handle some shuffling. According to the society of Chemical Manufacturers & Associates, small companies that do not have a large global production network or diversified supplier selection will be hit, especially China's retaliatory tariffs.
While chemical suppliers are trying to avoid putting customers at extra costs, consumers are unlikely to feel the pain of both sides of the trade war. Linda Lim, a professor of corporate strategy and international business at the University of Michigan, told supply chain dive that consumers are unlikely to feel such tariffs because chemicals are ubiquitous, but the quantities often found in consumer goods are very small.
However, if the mitigation strategy fails, industrial buyers of chemicals may eventually see prices rise.
Agricultural chemicals are of particular concern to the industry as farmers are already affected by low commodity prices and China's tariffs on US imports of soybeans, corn and pork. In Listing 4, there are at least seven taxes on pesticides that were previously not subject to tax.
Some chemical suppliers may choose to shift their production outside the United States in order to avoid China's import tariffs on their raw materials and China's import tariffs on their finished products, suggesting that the public may think that chemical tariffs lead to job losses. According to the Houston Chronicle, the United States is currently developing a $204 billion new chemical plant. If the third and fourth tariffs continue, they may not be as attractive as they used to be.
"Every time I talk to members of the company, I hear that we are going to have to make very difficult business decisions. We may have to cut jobs, we may have to shut down production in the United States. "
