Dive Brief:

• Chemical suppliers are taking hits from both sides of the U.S. trade war and mitigation tactics are running thin, according to Ed Brzytwa, the director for international trade at the American Chemistry Council. The chemicals on list four are relevant to food, beverage, agriculture, pharmaceuticals, personal care products, a multitude of industrial applications and more. Between the first three lists, chemicals represent $28 billion in tariffed imports, Brzytwa said.
• Tranche three included hundreds of tariff lines related to chemicals and chemical manufacturing and few players in the space have escaped tariffs under the existing lists. But if any had avoided the duties until now, list four likely put a stop to that, Brzytwa said, noting that he and the industry are still sorting through the extensive list of $300 billion in proposed new tariffs.
• Chemicals produced in the U.S. are suffering from both higher cost of materials imported from China and the shrinking Chinese export market due to retaliatory tariffs. The U.S. exports $7.9 billion in chemicals to China.

Dive Insight:

Because of the nature of chemical manufacturing, producers don't have as much wiggle room to tweak their processes to change how their products are classified and avoid tariffs as some other supply chains. Apparel manufacturers can, for example, produce some garments to 95% complete in China and then finish the product elsewhere to avoid tariffs.

Maneuvers like this are "a lot harder with molecules," Brzytwa said. Furthermore, some rare chemical components can only be purchased from China. Chemical companies have thus actively pursued tariff exemptions and Brzytwa said that will likely continue with regard to the fourth tranche.

"The mitigation strategies that our companies talk about aren’t related to tariff classifications," he said. "They're about trying to figure out how to absorb the cost so they don’t have to pass it to the customer."

Chemical manufacturing is a global business for global customers so the major players have facilities all around the world that can handle some shuffling. It's the smaller players without vast global networks of production facilities or diversified supplier options that will suffer, especially from China's retaliatory tariffs, according to the Society of Chemical Manufacturers & Affiliates.

While Chemical producers are working to keep extra costs away from their customers, consumers are less likely to feel pain from both sides of the trade war. Linda Lim, professor of corporate strategy and international business at the University of Michigan, told Supply Chain Dive consumers are unlikely to feel this category of tariff since chemicals are ubiquitous, but often found in consumer products in very small quantities.

Industrial buyers of chemicals, however, may eventually see a price increase if mitigation strategies run out.

Agrochemicals are a particular point of concern for the industry since farmers are already suffering from low prices on commodity crops and Chinese tariffs on imported American soybeans, corn, pork and others. At least seven tariff lines on list four concern broad categories of pesticides that have previously not been subject to the tax.

Some chemical manufacturers may choose to move production out of the U.S. to escape both the import tariffs on Chinese raw materials and the Chinese tariffs on their finished products, suggesting that where the general public may feel chemical tariffs is in job losses. $204 billion in new chemical manufacturing plants are currently in development in the U.S. according to the Houston Chronicle and if the list three and four tariffs stick around, those may not look as attractive as they once did.

"Every time I talk to a member company, what I hear is we are going to have to make very difficult business decisions. We may have to let people go — may have to shut down production in the United States," said Brzytwa​.