Chemical Makers Brace for Trade War
Chemical companies are mobilizing for the start of a new phase of the Donald J. Trump administration’s trade war with Canada, Mexico, and China now that the US is imposing tariffs on goods from those countries starting today.
The administration planned to impose 25% tariffs on goods from free-trade partners Canada and Mexico on Feb. 4, but concessions from those countries on the flow of illicit fentanyl into the US persuaded the White House to freeze the plan for a month. A 10% tariff on goods from China went into effect at that time.
The administration now says Canada’s and Mexico’s efforts against the drug trade haven’t been enough, and it is allowing the 25% tariffs to go into effect March 4, when the freeze expired.
“While President Trump gave both Canada and Mexico ample opportunity to curb the dangerous cartel activity and influx of lethal drugs flowing into our country, they have failed to adequately address the situation,” the White House says in a statement.
The administration has also imposed a 10% duty on top of the 10% tariff imposed on Chinese goods last month.
As the tariffs go into effect, the three countries are imposing retaliatory tariffs on US goods. Canada is levying 25% tariffs on $30 billion worth of US goods immediately and on $125 billion of US goods in another 21 days. Mexico says it will soon unveil new tariffs. China has announced tariffs of 10% and 15% on various US agricultural goods.
The trade war will be disruptive to the chemical industry. Canada, Mexico, and China are the top three US trading partners generally and the three leading export destinations for chemicals. Canada imported $29.5 billion worth of chemicals, excluding pharmaceuticals, from the US in 2024; Mexico imported $27.6 billion, and China, $14.7 billion.
Over the past decade, exports have become increasingly important to the US chemical industry. Because US petrochemical makers have access to cheap raw materials extracted from natural gas found in shale, they enjoy a cost advantage over their foreign counterparts. They have spent hundreds of billions of dollars on new capacity for products sold into export markets. For example, according to the Census Bureau, US exports of polyethylene and copolymers have more than doubled since 2014, hitting $16.5 billion in 2024. New tariffs imposed by other countries on products like these would chip away at the US advantage.
The US is also a major destination for exports from Canada, China, and Mexico. It imported $24.1 billion in chemicals from Canada, $13.8 billion from China, and $7.8 billion from Mexico last year.
Many US specialty and fine chemical makers depend on chemical intermediates that are produced mainly or exclusively in China. In 2019, the previous Trump administration erected tariffs of around 25% on many Chinese imports. At the time, US specialty chemical makers were able to appeal to the Office of the US Trade Representative to secure exclusions so that the raw materials they needed wouldn’t appear on duty lists.
Fewer than 20% of the exclusion requests were granted, notes Robert Helminiak, vice president of legal and government relations for the Society of Chemical Manufacturers and Affiliates (SOCMA), a trade group. Now there will be no such process, and US importers will have to pay the duty on all products.
“The executive order is explicit in that there are no exemptions,” Helminiak says.
SOCMA isn’t opposed to all tariffs, according to Helminiak. “They’ve certainly helped level the playing field for competition,” he says. “But we would strongly suggest that the tariffs need to be strategic. So those products that we really can’t get in the United States, that we don’t manufacture in the United States, that have to be imported, especially when they’re going towards the manufacture of new chemicals that we’re potentially exporting, that’s where we would really suggest those exclusion-exemption processes.”
Chemical companies are preparing for the tariffs. The specialty chemical maker Syensqo said recently that it would review its supply chain and sourcing strategy in light of the new duties. It may also impose surcharges to pass the cost of the duties on to customers.
In a recent conference call with analysts, Huntsman CEO Peter Huntsman said he expects a minimal impact on his company because it sells most of the key products that it makes, like the polyurethane intermediate methylene diphenyl diisocyanate, in the regions where it makes them. “I’m always surprised when tariffs are in,” Huntsman said. “They usually are not as damaging as people expect them to be.”