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China tariff plan slammed by chemical industry

July 31, 2018
Energy & Chemical Value Chain

To test the U.S. market for a new type of fluoropolymer, the U.S. subsidiary of the Japanese firm Daikin has been importing the material from its facility in China. If U.S. customers warm up to the resin, Daikin plans to proceed with a $200 million expansion at a plant it operates in Decatur, Ala.

But a 25% import tariff that the U.S. is preparing to impose on fluoropolymers and other products from China threatens Daikin’s plan. “Without the ability to validate the market potential for our product, the confidence to make this investment will be severely affected, directly impacting future production and employment at our Alabama plant,” the firm said.

The proposed tariffs would also depress business at a Daikin facility in Massachusetts that compounds fluoroelastomers the company imports from China, the company added.

Daikin was one of many chemical importers, exporters, producers, and industry associations to express near-unanimous opposition to import tariffs on Chinese chemicals and other goods during a public consultation held by the U.S. Trade Representative (USTR) on Wednesday, July 25. The USTR office develops and coordinates international trade policy.

While a few of those who attended or submitted statements for the meeting cheered tariff protection against alleged unfair competition from China, most hammered on the importance of China as a supplier, major market, or source of investment dollars.

“Uninterrupted access to global supply chains and foreign customer markets is vital to the American chemical industry’s ability to maintain its competitive position,” the American Chemistry Council (ACC), a trade association, said in a statement filed for the hearing. “Tariffs increase the cost of doing business in the United States and invite damaging retaliatory actions by U.S. trading partners.”

The consultation gave concerned parties a chance to express their views as the U.S. government considers a 25% tariff on goods imported from China worth $16 billion last year. The move would follow the introduction in early July of a 25% tariff on $34 billion worth of Chinese merchandise. In a few weeks, USTR will hold another hearing on a proposed 10% tariff on other Chinese merchandise worth $200 billion.

The actions are aimed at inducing China’s government to curb industrial and trade practices that the U.S. finds unfair. Although few chemicals were on the list of tariffs implemented in early July, about $2.2 billion worth of the goods discussed at the recent USTR hearing are chemicals, including some high-volume materials such as polyurethane ingredients.

Trade groups, companies, and individuals—many from the chemical industry—made close to 700 submissions to USTR. For some, the topmost concern was that retaliatory tariffs by China would cause American producers to be uncompetitive in that market.

In 2017, China imported 11%—$3.2 billion worth—of the plastic resins made in the U.S., ACC noted. The Chinese government has announced a 25% retaliatory tariff on resins and other products that would become effective if the $16 billion in U.S. tariffs goes ahead. This would be devastating to U.S. producers, some of which get a third of their foreign sales from China, ACC said.

Other trade groups representing segments of the chemical industry also expressed concerns about U.S. exports. The American Coatings Association noted that China is the third-largest export market for its members after Canada and Mexico. Similarly, the Fluoropolymer Trade Alliance warned that the U.S. has a trade surplus with China in polytetrafluoroethylene (PTFE) resins that retaliatory tariffs would likely turn into a deficit.

And even if U.S. fluoropolymer exports to China fall, escalating tariffs could nevertheless harm domestic users, the fluoropolymer alliance said. “There is currently a critical supply shortage of PTFE and other fluoropolymers worldwide,” the group noted. “China is an important source of PTFE resin and other fluoropolymers products because it has more than half of the global capacity.”

The group noted that the materials are used by U.S. producers of medical devices, cookware, seals, batteries, semiconductor processing equipment, and other products. Those companies employ tens of thousands of people, it stated.

Proposed U.S. tariffs on polyurethanes and specialty isocyanates generated several opinions. “Working with hexamethylene diisocyanate (HDI) imported from China reduced the costs of our customers by approximately 20%,” noted Tim Fetters in his submission to USTR. Dowd & Guild, the company where Fetters is a partner, is a California-based distributor of materials used in the coatings, sealants, and adhesives industries. Many chemicals in these categories are produced by merely one or a few suppliers; the only HDI producer in the U.S. is Covestro, Fetters noted. “Increasing tariffs in a highly oligopolistic market is punishing U.S. industrial users,” he wrote.

PPG Industries uses Chinese-made HDI as an industrial paint ingredient. The firm alleged that its interests and those of its customers would be “significantly harmed” by the proposed tariff on HDI. It said the action would decrease competition among suppliers and increase the price of paint.

The U.S. subsidiary of the Chinese polyurethane chemicals firm Wanhua Chemical, the likely source of PPG’s HDI, separately objected to a proposed tariff on polyether polyols, which are reacted with isocyanates to produce polyurethane foams.

The company claimed that while U.S. isocyanate producers force their customers to buy isocyanates and polyols together as a bundle, Wanhua makes no such demand. Limiting access to Chinese polyols would raise cost for U.S. companies that use the materials to make insulation for home appliances, Wanhua alleged.

Wanhua further noted that it is considering spending $1.2 billion to build a plant producing methylene diphenyl diisocyanate—a key isocyanate for insulation and other applications—in Louisiana. Tariffs on polyurethane chemicals would impede the company’s efforts to develop a customer base in the U.S. ahead of building the plant, threatening the investment’s viability as well as 1,000 planned jobs.

A handful of U.S. chemical makers proclaimed themselves pleased with the proposed tariffs. Galata Chemicals, formerly part of the chemical maker Chemtura, contended in its submission to USTR that its organotin stabilizer business has been hurt by unfair Chinese industrial policies. The stabilizers are added to polyvinyl chloride before it’s formed into pipe, window siding, and other construction components.

The company claimed that the Chinese government subsidizes its manufacturers while curtailing exports of tin, a necessary raw material. China has the world’s largest reserves of tin and is the world’s top producer, Galata said.

“Galata has lost significant business and market share in recent years as a direct result of unfairly priced Chinese competition,” the firm noted. While tin stabilizers are on the list of goods for which the U.S. has threatened a 10% tariff, Galata urged USTR to move them to the 25% list. “Increasing tariffs on tin stabilizers would help eliminate China’s protectionist acts, policies, and practices,” it said.

The U.S. Chamber of Commerce, an association claiming to speak for 3 million businesses, expressed support for U.S. efforts to change Chinese industrial policies, particularly with regard to forced technology transfer, violations of intellectual property rights, and arbitrary government interventions. But rather than tariffs, it advocated for other measures, such as limiting the ability of Chinese companies to invest in the U.S. and more negotiations to convince China to change its ways.

ACC called the tariffs a “blunt instrument” that will fail to “obtain the elimination of China’s acts, policies, and practices.” The U.S. chemical industry is far better off without tariffs that will harm business and discourage investment, ACC said. “Tariff costs will diminish the competitiveness of our industry and potentially threaten the viability of $194 billion in announced chemical industry projects.”

By Jean-François Tremblay

Source: C&EN

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