Home / World Economy / World Economy News / Battle tactics: China, the US and the art of trade war

Battle tactics: China, the US and the art of trade war

As the trade US-China trade conflict continues to escalate, what is the impact on petrochemical value chains? Of late, the expectation across the industry was of resolution to the US-China trade conflict. That mood quickly shifted last month after both US and Chinese authorities raised the stakes by pushing higher rates on the third round of targeted imports from the other country. The US increased tariffs from 10% to 25% on US$200 billion worth of Chinese imports, while China raised tariffs from 5%-10% to up to 25% on US$60 billion of US imports.

The continued and heightened tariff environment makes investment decisions uncertain for petrochemical/plastics producing companies and for finished goods manufacturing firms. Multi-billion dollar petrochemical investments are planned in both countries and higher tariffs will reduce the netbacks for US resin as well as Chinese finished goods, directly impacting return on investments.

Timeline of the US-China trade war

While petrochemicals themselves were primarily targets of the second round in the trade war (which were not changed in the most recent revisions), the third round targeted finished goods. As such, we anticipate little disruption to polymer resins such as PE, PP and PVC.

The sudden shift means the supply chain for affected products will be disrupted in the near term. Logistics implications in the form of re-routed ships and swap agreements will continue to squeeze margins for global chemical traders and suppliers. Several US producers have petrochemical operations in other countries, allowing flexibility in how they source China-bound volumes. Such is not the case, at least to the same extent, for Chinese producers. Higher costs mean that US consumers will likely see a higher price for chemical and plastic products on the list, including plastic bags and sacks, plastic pipe, hose, tubes, fibres, containers, tanks and pipe fittings.

The trade war remains far from over. The US has already announced it is reviewing its ability to place tariffs on the final US$300 billion worth of Chinese imports. In order to answer, China would need to get creative with their tariff response as already they are running out of US imports available to be taxed. The reaction could come in some other form (perhaps a higher rate or other political and economic measures), but to what extent it affects petrochemicals is uncertain.
Source: WoodMac

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping