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On NAFTA, report says US loss could be China's gain

PLASTICS NEWS

  Dooley

Washington - The leading chemical industry trade association in the United States is warning that China's industry stands to gain if the United States withdraws from the North American Free Trade Agreement.

The American Chemistry Council made the conclusion in a Feb. 28 report it released as negotiators for Canada, Mexico and the United States were meeting in Mexico City in the seventh round of talks, with at least one more round expected.

ACC also said it opposed the Trump administration's announcement March 1 of higher tariffs on imported steel and aluminum, which press reports said was aimed partly at China.

ACC President and CEO Cal Dooley said he feared other countries would retaliate against U.S. chemical industry exports, and the organization described the steel and aluminum tariffs as coming at the "worst possible time."

On NAFTA, whether the Trump administration will ultimately withdraw from the agreement is not clear.

But given that it's a possibility, ACC argued that leaving the trade agreement will raise U.S. manufacturing costs and open the door for chemicals and plastics products from other global competitors.

"Increasing the costs to do business in the U.S. will invite lower-cost competitors to enter, or increase their presence in, the U.S. market," ACC said. "China is poised to take advantage of this opportunity."

A NAFTA exit would likely result in "forcing" the Canadian and Mexican industries "to turn to lower cost imports from China to satisfy their demand for chemicals and plastics," ACC said.

It's not just China: Europe and Brazil also stand to gain, said ACC President and CEO Cal Dooley.

ACC argued that over time, the higher tariffs in a world after NAFTA would - even if only the six percent duty that Mexico could immediately put in place - disrupt the complex, cross border manufacturing supply chains.

Higher costs could prompt industries like car makers to look for other sources of components, ACC said.

"A probable outcome is that Chinese producers, which are already competitive suppliers of inputs that are important to the Mexican economy (e.g. auto parts), would gain market share," it said.

The report estimated that eliminating NAFTA would slow the growth of U.S. chemical industry exports to Canada and Mexico.

In large part because of low-cost shale gas feedstocks for plastics and chemicals, ACC said exports to those two countries are projected to rise from $44 billion (280 billion Chinese yuan) today to $59 billion (375 billion yuan) in 2025. But if NAFTA is eliminated, ACC estimates U.S. exports will only rise to $52 billion (331 billion yuan).

"Demand will still be there, but U.S. chemicals on balance could be 6 percent more expensive compared to other suppliers around the world, be they chemical manufacturers based in Europe, Brazil or China," Dooley said.

The China angle was not the most prominent part of ACC's report. The association expressed concern that leaving NAFTA would hurt the investment planned in the U.S. chemical and plastics industry, but China was mentioned prominently.

 

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