Trump, Tariffs, and Chemical Trading

Now that the dust is settling over the US election results, and with President Trump now aligning his cabinet and policies with his electioneering rhetoric, it is time to analyse what impact the new administration will have on the global chemical industry.

As it stands, Trump’s nomination for Commerce Secretary, Billionaire mega-donor, Howard Lutnick is likely to be confirmed, with political insiders highlighting his vocal support for Trump’s stated economic plan.

As Politico notes, “Lutnick has talked about slashing regulations, enacting Trump’s sweeping tariffs, boosting energy production, extending the 2017 tax cuts and lowering the corporate tax rate. In addition, Lutnick has been a vocal proponent of the crypto industry and would be in a position to carry out Trump’s campaign promise to make the U.S. the ‘crypto capital of the planet.’”

But while it is simple to place the impact of tariffs for chemical companies in one basket. The situation is far more nuanced, with each chemical trader having to evaluate each of their products individually. This is especially true for raw materials or components which cannot be made in America and can only realistically only be imported from China.

“For example, duties are less likely to be imposed on products that are vital for the production of semiconductors or EVs in the United States, if those materials are not likely to be available from countries outside of China,” notes trade lawyer Robert Shapiro, a partner with Thompson Coburn LLP in Washington, D.C. “The fact that the product may be available at a lower price from Chinese suppliers than they will be from alternative sources is not likely to have a significant impact on the Administration’s decision regarding the imposition of additional duties on the product.”

That said, while it is important to note that President Biden maintained and even extended some of the trade tariffs Trump imposed in his first term, during the election campaign Trump doubled down on the importance of import duties in his wider economic plan.

“Overall, it’s not the use of tariffs in general that has some economists concerned, but rather how broad or large the tariffs might be,” writes Danielle Sottosanti, a journalist with more than 15 years of experience in analysis of trade, global economics. “During his campaign, Trump’s proposals included imposing a blanket tariff of 10% to 20% on all imports, with additional tariffs of 60% to 100% on goods imported from China, and a 25% to 100% tariff on goods from Mexico—if the Mexican government doesn’t take steps on its end to close the U.S.-Mexico border.”

This has led many chemical industry analysts to predict that an aggressive implementation of trade tariffs will significantly impact the global chemical industry – most immediately in terms of uncertainty.

“While Trump’s trade and energy policies may bolster some segments of the U.S. chemical industry, the broader global implications are mixed,” explains Plamen Aleksandrov, Head of Chemical Industry Research at the SSY investment brokers. “Increased tariffs and retaliatory measures could fragment international markets, reduce efficiency, and disrupt established supply chains. Conversely, regions like Europe might capitalise on redirected trade flows, albeit with increased pressure on domestic manufacturers.”

As one of the most trade-dependent sectors of the economy, the chemical industry relies heavily on the free flow of raw materials, intermediates, and finished products across borders. Any tariffs imposed by the Trump administration on imports from China are likely to impact the chemical industry’s delicate global trade networks.

Consequently, chemical manufacturers are likely to face rising input costs combined with retaliatory tariffs on their exports, squeezing profit margins and forcing them to pass along higher prices to customers. This is especially problematic for the U.S. chemical industry, which has enjoyed a competitive advantage in recent years due to the abundance of low-cost shale gas feedstocks.

“If you're using tariffs to protect domestic producers, inevitably, what you're saying is, ‘I'm going to raise the price of this foreign good that can be imported cheaper, so it can be made here,’” says investment strategist Steve Wyett. “However, that means consumers are now going to be asked to pay a higher price for the good either by paying the tariff on what's imported or by paying a little bit higher price for a domestic producer to produce the good. The domestic producer is going to price it as close to the tariff price as possible.”

Beyond the immediate financial impacts, the broader uncertainty and unpredictability introduced by the Trump administration's trade policies will undermine long-term investment and expansion plans across the global chemical sector.

Related article: The Chemical Industry’s Three Greatest Challenges or EU Leaders Talk Openly about Chemical Sector Decline

But while fears remain for the health of the US chemical industry, at least it is supported by an economy running on low inflation, high employment, and overall prosperity. This is in stark contrast to other economies, such as China and Japan, which are struggling to maintain growth.

“If Trump does come in and put those tariffs into place, then that's obviously going to have a detrimental effect on the economy in China,” notes Peter Tibbles, BOK Financial’s senior vice president of foreign exchange trading. “They’ve been trying to grow—but it’s a struggle. They've got a lot of housing problems.”

With the chemical industry functioning as one of the world's largest employers and drivers of economic activity, any disruption to its intricate global supply chains will have far-reaching ripple effects felt by manufacturers, distributors, and consumers around the world.

One can therefore only hope that any tariffs imposed will not have a detrimental effect on global economic health, at a time when many economies, such as those in Germany, China, and Japan, are teetering on the edge of recession.

Economists and chemical industry leaders must therefore put their faith in the resilience of the wider chemical industry to endure any forthcoming trade war and its ability to adapt and innovate accordingly.

As Aleksandrov concludes, “For the chemical industry, the key to navigating these disruptions lies in diversification and strategic adaptation. As the global economy recalibrates, the chemical sector must brace for both volatility and opportunity in equal measure.”

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