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Industry worried about 'unintended consequences' of trade war

PLASTICS NEWS

Washington -- Call it collateral damage from a trade war with China: Saudi Basic Industries Inc. says steep tariffs proposed on U.S. polycarbonate exports to China could cause the company to shift some production out of the United States.

That's what a Sabic executive told a May 15 hearing in Washington, that the potential trade war between the two countries "would lead to unintended consequences and result in disproportionate harm" to plastics and chemicals makers.

Sabic was not alone in saying tariffs could perversely push some production offshore.

The American Chemistry Council told the panel that China's retaliatory tariffs could cause some U.S. specialty polymer producers to "reduce or end production in the United States" to stay competitive in China's large market.

But Sabic made the strongest statements, specifically linking the potential for 25 percent tariffs on U.S. resin exports to China to harm to its U.S. factories and jobs.

"If China implements these retaliatory tariffs, we would seek to maintain our market share in China," said Greg Skelton, Sabic's director and head of government relations, Americas. "This may mean moving production out of the U.S. to our existing polycarbonate facilities in other regions."

Skelton specifically mentioned the company's PC manufacturing plants in Mount Vernon, Ind., and Burkville, Ala., and said that the "good manufacturing jobs that we provide ... would suffer adverse effects from a prolonged disruption in demand due to higher Chinese tariffs."

He also said reducing domestic PC production would hurt U.S. plastics processors and their customers that rely on Sabic materials.

"This would have associated cost impacts on downstream industries in the U.S., such as automotive, electronics and medical devices, that currently source their polycarbonate from our U.S. production," Skelton said. "While that's not the intention of the administration's proposed action, to bring negative repercussions to companies manufacturing in the U.S., it's important to factor in the real-world impact."

Sabic, ACC and others testified on the opening day of three days of hearings before the panel called by the office of the U.S. Trade Representative to look at the Trump administration's proposed $50 billion tariffs and fallout from Chinese retaliation.

While there are many voices in support of tariffs in the U.S. plastics industry, the Washington hearing gave skeptics of the Trump administration's tariff plans a chance to make their case in more detail than they have in the past.

ACC, for example, noted that its testimony included new concerns from member companies in the plastics industry, worried that Beijing's tariffs would price them out of the growing Chinese market.

"Some ACC members are specialty polymer producers serving global markets from U.S.-based plants and competing with non-U.S. suppliers," said Ed Brzytwa, director of international trade at the Washington-based group.

"China's retaliatory tariffs will weaken the competitiveness of U.S. producers in very important export markets," he said. "Some producers will reduce or end production in the United States in order to maintain access to China's market and others will be greatly disadvantaged."

ACC also gave an example of a company that relies on "U.S.-sourced specialty plastics products" that was worried about millions of dollars in direct impact from China's tariffs and said the Chinese tariffs "will incentivize offshoring. The company anticipates moving the production of those materials to its European or Asian operations."

Brzytwa declined to name the companies or share details but repeated ACC arguments that 40 percent of China's retaliatory tariffs are aimed at U.S. chemical and plastics makers.

Manufacturing groups at the hearing were trying to walk a line, testifying that they shared the Trump administration's concerns about China but didn't think broad tariffs were the solution.

The National Association of Manufacturers praised the administration's tax cuts and regulatory rollbacks and said it welcomed the sharper focus on China.

But it noted that, even as there's an overall deficit with China, U.S. manufacturing exports to China have grown five fold since 2001, to $97 billion, and the country is now the third-largest export market for manufacturers.

"Our manufacturers need to be able continue to tap into that enormous growth and win more sales in China in order to support and create more good-paying manufacturing jobs here at home," said Linda Dempsey, vice president of international economic affairs at NAM.

NAM, ACC and others urged a more targeted approach, with NAM advocating to negotiate a comprehensive trade deal with Beijing that would better open China's markets to U.S. goods.

The plastics industry itself is split on the tariffs, according to written testimony from the Washington-based Plastics Industry Association, which did not send a representative to testify in person at the hearing.

"Support for the tariffs is split along the lines of those who have direct competitors from China and those who do not," Scott DeFife, the group's vice president of government affairs, wrote. "In general, we believe that there are more targeted ways to address the issues that plague the U.S.-China trade relationship -- actions that don't put the country at risk of a trade war."

The largest U.S.-based maker of plastics machinery, Milacron Holdings Corp., said in written testimony that it supported the Trump administration's 25 percent tariff on injection molding machines from China.

However, illustrating the complex nature of global supply chains, Milacron opposed tariffs on the roughly $100 million in Chinese components it imports annually to make its equipment in the U.S.

That in a nutshell might be the challenge for the tariffs. There was repeated testimony that helping one sector hurts another.

For example, one association representing users of the molding machines said they opposed tariffs on Chinese-made plastics equipment.

The Motor & Equipment Manufacturers Association, which represents 1,000 vehicle parts makers, specifically asked the USTR to remove tariffs on Chinese-made injection molding machines and plastic molds, among a long list of other equipment it wanted exemptions for.

It argued those tariffs would hurt its member companies' competitiveness without addressing concerns about China, a point echoed by NAM at the hearing.

"While tariffs may provide short-term relief to some, we are hearing regularly and broadly from manufacturers across the country who are deeply concerned about the harmful albeit unintended impacts of the proposed tariffs," Dempsey said. "These tariffs would cripple many manufacturers that depend on imports."

 

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