China on May 19 announced it would initiate an anti-dumping investigation into plastics imported from the United States, the European Union, Taiwan and Japan, BBC news reported. Specifically, China is targeting polyoxymethylene copolymer - which is used in electronics and cars.
The action appears to be in retaliation to the Biden administration’s announcement last week that it would impose import tariffs on $18 billion worth of goods from China and an EU probe into Chinese metals and solar panel manufacturers, according to BBC.
Legal, economic, and industry experts had varying reactions to Biden's announcement of import duties. While some responded with cautious optimism, others expressed uncertainty about the potential implications of this decision.
Several chemical manufacturers have begun diversifying into the EV battery market, processing critical materials such as lithium. The industry is also a key supplier for semiconductor manufacturing and renewable energy, including solar panels.
James Greenberger, executive director of battery manufacturing trade group called NAATBatt International indicated that the tariffs send a mixed message for battery producers.
“With respect to the 100% EV tariff, my reaction is: ‘OK. Now what?’ That tariff may be a necessary short-term fix to prevent the U.S. auto industry and all of the federal governments billions of dollars of investment in the lithium battery supply chain, from being overwhelmed and potentially wiped out by low-cost Chinese imports,” said Greenberger in an email. “But longer term, the tariffs will probably not be effective to keep U.S. consumers from acquiring lower-cost, higher-quality products made somewhere else. That is not economically or politically sustainable. In the longer term, we need to make sure that U.S. manufacturers can get their costs down, so that they can compete with the Chinese imports the Administration is trying, in the short term, to keep out. So, other than the tariffs, what is the plan? I am not sure I have heard it yet.”
The American Chemistry Council (ACC) was reviewing the ruling and the final list of affected products as of May 14, according to Andrew Fasoli, director of international and regional communications for the ACC. However, as of May 21, the organization had not issued any official comment on the matter.
Economic, Legal Experts Weigh In
The chemical industry could experience indirect impacts from the tariffs depending on how they influence the development of domestic electric vehicle and battery supply chains, says Jeremey Leonard, head of international industry services for Oxford Economics.
In the near term, the tariffs are likely to result in trade diversion rather than a major boost in U.S. battery production, he says. Electric vehicle manufacturers may source batteries from countries other than China to avoid the tariffs, as battery production costs are currently higher in the U.S. compared to China as well as Japan and South Korea. Previous tariffs on Chinese imports have shown trade diversion to other nations like Mexico was more common than reshoring production to the U.S.
The tariffs could discourage entry of lower-cost electric vehicles into the U.S. market, which has already seen slowing demand partly due to high EV prices. This weakening demand could limit growth in domestic battery and chemical production servicing that market.
“A final point is that, if China believes these tariffs may be long-lasting (and it appears that they will be, since some of them are not scheduled to come into effect until 2026), Chinese firms may establish production facilities in Mexico to circumvent tariffs,” Leonard says.
Leonard added that Chinese EV producer BYD Auto is exploring this possibility and that battery manufacturers may follow suit. While this could have negative impacts, Leonard suggests it may not be entirely unfavorable for U.S. chemical manufacturers.
He states that if these new facilities in Mexico opt to source materials from U.S.-based chemical firms, it could allow the domestic U.S. chemical industry to capture some of the additional upstream demand created by this shift in manufacturing locations.
While the specific products subject to additional duties remain undetermined, the report indicates key factors the administration will weigh, notes trade lawyer Robert Shapiro, a partner with Thompson Coburn LLP in Washington, D.C.
Among the factors they will consider are whether the product is part of an industry already being injured by competition from China, whether it is produced by strategic U.S. trading partners, and its importance to the industries targeted for growth under the Inflation Reduction Act (IRA) and CHIPS Act, Shapiro says.
“These factors should be considered dynamically,” he adds. “For example, duties are less likely to be imposed on products that are vital for the production of semiconductors or EVs in the United States, if those materials are not likely to be available from countries outside of China. The fact that the product may be available at a lower price from Chinese suppliers than they will be from alternative sources is not likely to have a significant impact on the Administration’s decision regarding the imposition of additional duties on the product. In short, it appears that the Administration is applying long-term, strategic reasoning to the determination of whether to impose additional tariffs on a product in order to limit the dependency of the United States on Chinese producers for these products.”
