WASHINGTON (December 7, 2021) – The Section 301 tariffs on imports from China and China’s retaliatory tariffs on U.S. exports predictably caused trade flows to recede for most sectors since June 2018, but U.S. chemicals trade with China was an exception, according to a surprising new analysis by Trade Partnership Worldwide and commissioned by the American Chemistry Council (ACC). The finding is especially interesting given that the U.S. chemicals industry was one of the hardest hit by the previous Administration’s trade wars, with $20 billion in U.S. chemicals industry imports impacted by the China Section 301 tariffs.
“We were surprised by this finding and expected that imports of chemicals from China would fall in line with declining imports from China overall,” said Ed Brzytwa, director of international trade at ACC. “Instead, we discovered that chemicals were an outlier – and represent a possible path forward for the Biden Administration to rescind some of the Section 301 tariffs, counter rising inflationary pressures, and still maintain a strong negotiating position with China.”
Aggregate U.S. imports of chemicals from China increased by 17 percent since June 2018, the study found, and despite several product exclusions, U.S. chemicals manufacturers paid $6.5 billion in tariffs between the start of the trade war in June 2018 to June 2021. More than half of all U.S. chemicals imports overall are intra-company, according to ACC.
“This new analysis suggests that U.S. firms elected to pay the tariff and import the chemicals and plastics products anyway because they are essential intermediate inputs to U.S. manufacturing and, to a large extent, they can’t be found or produced anywhere else but China,” Brzytwa said. “If these products are indeed essential, must be imported despite tariffs, and are ultimately used to strengthen U.S. manufacturing competitiveness, then it begs the question – why should the U.S. continue to tax them?”
According to a previous Section 301 tariff exclusions and extension analysis by Mercatus Center, of the 1,325 tariff waiver requests for chemical products, only 10 percent were granted, with the remaining requests denied. Of the 1,372 plastic product tariff exclusion requests submitted, only 19 percent were accepted. Granting more of these exclusions could make a difference in curbing inflation and supply chain constraints.
“Due to their critical importance and the value added to other industries and manufacturing entities, U.S. chemicals and plastics products should be eligible for more exclusions than have been granted to date,” Brzytwa said. “It is economically counterproductive to levy tariffs on imports of intermediate inputs that ultimately go on to strengthen U.S. manufacturing, boost exports, and contribute to the U.S. chemicals trade surplus. The scarce resources U.S. manufacturers have allocated to make tariff payments would be better used to hire more employees or innovate new products.”
Chemistry touches virtually all facets of the Biden Administration’s February 24 Executive Order on America’s Supply Chains and ‘Build Back Better’ agenda. And yet, the tariffs continue to disrupt the U.S. chemical industry’s supply chains and business operations. The tariffs also undermine priority Biden Administration objectives: making supply chains resilient; strengthening and building infrastructure; and cultivating industries essential to American economic competitiveness.
“Between the House Ways and Means Trade subcommittee hearing last Thursday, rising inflation, and mounting supply chain bottlenecks, we’re nearing a tipping point on the Section 301 tariffs,” Brzytwa said. “If the Administration is looking for a potential off-ramp, this study strongly points in the direction of suspending tariffs on chemicals and other intermediate inputs.”
