16:49 PM | June 5, 2019 | Robert Westervelt in Colorado Springs
Trade tensions are denting economic confidence, industry executives said at the ACC annual meeting in Colorado Springs, Colorado. Global economic growth is slowing, forcing chemical demand expectations lower, with much of the blame attributed to trade uncertainty.
Trade tops industry’s regulatory agenda right now, ACC president and CEO Cal Dooley said at a press briefing. US trade posture is having “significant adverse impact on some of the most competitive sectors of the economy” including chemicals, Dooley says.
China’s trade practices and lack of intellectual property protection need to be addressed but a go-alone approach by the Trump Administration is counterproductive, Dooley says. “When you respond in a unilateral fashion by imposing tariffs, no one should be surprised that the retaliation is targeted at the most competitive sectors in the US economy,” Dooley says. “The chemical and agricultural sectors are winning [in global markets] today, but tariffs have eliminated or reduced that competitiveness.”
Recent plans by President Trump to put tariffs on Mexican imports to address illegal immigration may prove to be “the inflection point that does result in Congress taking action to constrain some of the executive authority that the president might have,” Dooley says. “We are committed to creating a political environment that can build support among Republicans and Democrats to ensure that we are advancing those pro-trade policies and continuing to work with the Administration to encourage agreements with China as well as Canada and Mexico.”
Dow CEO Jim Fitterling noted that while tariffs draw the public attention, intellectual property protection is at the “crux” of the dispute with China. “We're trying to make sure that China plays by the rules and that there is protection for intellectual property, which we also think is a good thing for China as it is developing its own intellectual property,” Fitterling says. The fight over “IP protection is what’s underneath all the headlines that you read.”
Trade disputes are dampening US industry’s shale-fueled resurgence. ACC released its Mid-Year Situation and Outlook at the meeting and forecast that US chemical volumes in 2019 will grow at 2.5% in 2019, down from its earlier expectation of 3.6% growth when its year-end 2018 outlook was released in December. Agricultural chemicals, fertilizers, and crop protection chemicals account for most of the decline. ACC now expects agchems volumes to decline 2.1% this year compared with previous expectations of a 4.8% gain. Fertilizers are taking the biggest hit due to trade-related export demand declines in soybeans as well as US weather. Basic chemicals continue to grow faster than GDP, but full-year 2019 volume growth expectations have been lowered to 3.7% from 4.8%, according to ACC’s mid-year update.
To date, 334 shale-related chemical and plastics projects cumulatively valued at $204 billion have been announced in the US, according to ACC chief economist Kevin Swift. The US chemical industry will post a $37-billion trade surplus in chemicals this year as exports rise 5.9% to $149 billion and imports rise 2.4% to $112 billion. Escalation of trade tensions is limiting export growth potential as significant new productions comes online in the US, ACC says.
Jerry MacCleary, chairman and CEO of Covestro LLC, and current ACC board chair, says tariffs threaten to restrain US competitiveness. Covestro announced plans for a $1.5-billion methyl-diphenyl diisocyanate (MDI) investment last year at Baytown, Texas. The company remains confident in the project, but tariffs are complicating decision making. “Volatility right now from trade and tariffs makes it difficult to plan for these types of investments,” MacCleary says. “It's not good for our industry and It's not good for investment.”
Trade tensions are intensifying economic risks as synchronized global growth dissipates, executives say. “China started to slow down in middle of last year,” Fitterling says. “We saw that on [big-ticket items] like automotive and consumer electronics. That had a knock-on effect into Europe. Trade tensions on top are magnifying that.”
Companies “are adjusting capital spending and other things to match market growth,” Fitterling says. “The consumer has pulled back on big-ticket items.” Consumer demand across most other segments, including personal care, packaging, and other non-durables, remains strong, he adds.
Industry is urging quick de-escalation of trade tensions to fuel a hoped-for demand recovery in the second half. “We had a good start to the second quarter in April,” Fitterling says. “Volumes continue to be there. People are holding tight because of the uncertainty right now. If they feel like they have a more certain view of what's going to happen, you'll see them be willing to take a little bit more risk and to make some commitments. One of the missing pieces right now is that global confidence. A little bit of confidence would be helpful to having a strong second half.”