What's Happening?
The global chemical industry is experiencing significant uncertainty due to escalating trade tensions and higher tariffs, which threaten to dismantle decades of globalization. Since President Trump's declaration of Liberation Day on April 2, 2025, marking
the start of the latest trade war, major economies have faced slow or stagnant economic growth. Chemical producers are dealing with low prices, margins, and disrupted supply chains. Average U.S. tariffs surged from 2.4% at the start of the year to a peak of 28% in April, before settling at 16.8%, the highest level since 1935. This increase has heavily impacted global trade flows, undermining confidence and delaying investment decisions. The industry is shifting towards more local or regional supply chains to reduce exposure to geopolitical risks and tariff volatility.
Why It's Important?
The intensifying trade tensions and higher tariffs have profound implications for the global chemical industry, which has traditionally relied on export-driven business models. The shift towards regionalization is gaining momentum as companies reassess their business models to mitigate geopolitical risks. European producers face additional challenges with the pending U.S.-EU trade deal, which could eliminate tariffs on U.S. finished goods and chemicals. This situation raises concerns about the region's reliance on imports and the resilience of its domestic industrial backbone. The industry must adapt to a new reality where export-oriented businesses may no longer be viable, necessitating agility, innovation, and a reevaluation of business fundamentals.
What's Next?
The chemical industry is likely to see increased consolidation, with efficient players dominating the market. Large-scale projects, such as Borealis' propane dehydrogenation unit and INEOS' Project One cracker, are moving forward despite the challenges. However, the sustainability of these investments amid structural changes remains uncertain. Industry analysts warn that the post-war trading system is ending, forcing producers to pivot towards regionalized production and sovereign supply chains. The resurgence of defense-related demand presents opportunities for the chemical industry, as governments race to secure domestic production of critical materials.
Beyond the Headlines
The shift towards regionalization and the resurgence of defense-related demand highlight the need for local supply resilience and the importance of recycling and circular economy technologies. As geopolitical tensions rise, the chemical industry must adapt to a protectionist world where export markets are no longer guaranteed. This transition requires a realistic approach, replacing wishful thinking with strategic planning to ensure long-term sustainability and competitiveness.
