The United States and China are playing a dangerous game with proposed tariffs, and that could cause big problems for the plastics industry in both countries.
Is it time to panic? No. There are plenty of signals from leadership of both countries that they don't want a trade war. They know the stakes are high. No one wants their country's economy to slide into a recession.
But they're tempted to push as much as possible because the potential gains are so appealing. So this isn't a war, it's more like a poker game. Who has the strongest hand? Who's bluffing? It will take some time to figure out. And the game won't be over after just one hand.
That's a problem for the plastics industry. There's a possibility that plastics could get hammered in the back-and-forth that ultimately leads to a new trading relationship between the United States and China.
What's at stake? Well, 25 percent tariffs will get your attention right away. That's enough to make most imported goods uncompetitive.
Plastics are at greater risk than pundits expected. Everyone expected China to go after agricultural products — the United States exports a lot of soybeans and hogs to China, and tariffs on those products may shake President Donald Trump's electoral base. Sure enough, agricultural products are being targeted. But about 40 percent of tariffs proposed by China have some plastics element.
There are 44 chemicals, petrochemicals and feedstocks on China's list of products that could see a 25 percent tariff, according to Esteban Sagel of Chemical & Polymer Market Consultants in Houston. Polyethylene is getting the most attention, because of all the new PE capacity on the U.S. Gulf Coast. A lot of that resin is supposed to be exported to China.
Resin is a big part of the picture, but North American plastics processors — our primary readers — probably don't care much if processors in China may need to start paying more for polyethylene and other resins. But there's another tangential impact here: The proposed U.S. tariffs cover a massive list of industrial products, including molds, injection molding machines, extruders, blow molding machines and thermoforming equipment.
OK, processors may say, what if they don't buy Chinese molds or machines? They may be surprised that many machinery companies outside China use components and raw materials from China. Supply chains are complex and intertwined, after all.
The 58-page list of U.S. tariffs on Chinese-made products covers nearly every imaginable type of machine and component, including machine tools, steel and aluminum, machine bases and platens, screws, motors, pumps, dryers, printing equipment and testing instruments.
For proof, just look at the list of U.S.-based companies that exhibit at Chinaplas, especially raw material suppliers. And the number of Chinese companies that will exhibit at NPE2018 — 571, with about half in the category of molds, dies and tooling. All those companies have made exporting part of their business plan. Both shows will take place within the next month. What message will they tell customers at those shows? Don't worry about it?
Trade wars may truly be easy to win, as Trump recently said. But I'm skeptical, and I think the uncertainty may cause more headaches than the experts are currently expecting.
Don Loepp is editor of Plastics News and author of The Plastics Blog. Follow him on Twitter @donloepp.
