China floods the market with chemical exports | DW News

Key Concepts

• Chemical Dumping: The practice of selling chemical products in a foreign market at prices below their production cost or domestic market price, often to gain market share or dispose of surplus.
• Trade War Collateral Damage: Unintended negative consequences of trade disputes between two nations that affect third-party countries or industries.
• Capacity Utilization: The extent to which the productive capacity of a business or nation is being used. For German chemical plants, 82% is the break-even point for profit.
• Import Tariffs: Taxes imposed on imported goods and services, designed to protect domestic industries or generate revenue.
• Trade Defense Proceedings: Legal or administrative actions initiated by domestic industries against foreign competitors accused of unfair trade practices, such as dumping or subsidies.
• Weak Domestic Market: A situation where consumer demand and economic activity within a country are low, leading to oversupply and a push for exports.

Overview of the European Chemical Market Influx China is significantly increasing its chemical exports, including plastics, to Europe, posing a substantial threat to Germany's domestic chemical industry. Chinese chemical exports to Europe have surged by 40% compared to the same period last year. This influx is characterized by "dumping," where Chinese products are sold at "rock bottom prices," effectively undercutting local European chemical and plastic producers.

Drivers Behind China's Export Strategy This redirection of Chinese chemical goods is primarily driven by two factors:

• Weak Domestic Market: China is pushing exports to compensate for low demand within its own country.
• Favorable European Tariffs: European import tariffs are lower than those imposed by the United States. The shift is a direct consequence of former President Trump's "terrorist policy" (referring to tariffs) against China, which rendered the US market economically unviable for China's chemical industry, prompting its pivot to Europe.

Impact on the German Chemical Industry The surge in cheap Chinese imports is severely impacting Germany's vital chemical sector, which supplies numerous industries and employs over 450,000 people. Key consequences include:

• Lowered Forecasts: Major German players, such as BASF, have already reduced their forecasts for 2025 due to a weak economy and high energy costs, exacerbated by the Chinese competition.
• Under-capacity Operation: German chemical plants are currently operating at only 71% capacity, significantly below the 82% required to achieve profitability.
• Price Erosion: Mass-produced plastics, commonly used for packaging, are now 10% cheaper than a year ago, making it difficult for German producers to compete.
• Job Losses and Closures: The intense competition has led to the closure of some facilities and the loss of many jobs, with more positions at risk.

The Role of US Trade Policy and New Agreements Ironically, the situation for Europe's chemical market could worsen due to a newly negotiated agreement between the European Union and the White House. This "biggest deal ever made" eliminates import tariffs on basic chemical products to Europe, potentially leading to an even greater flood of US basic chemical products into the market. This highlights how trade policies initiated elsewhere can have significant, often unintended, "collateral damage" in other regions.

Industry Response and Future Outlook In China, industry players have initiated trade defense proceedings against the country, though there is skepticism regarding their potential effectiveness. The overall sentiment is that while the "trade war may have started across the Atlantic," its detrimental effects are now "made in Europe," particularly impacting Germany's industrial landscape.

Conclusion: The Broader Implications of Trade Wars The situation in the European chemical market exemplifies how global trade disputes and protectionist policies, such as those implemented by the US against China, can have far-reaching and complex consequences. The redirection of trade flows, driven by domestic market weaknesses and tariff differentials, creates significant challenges for third-party economies like Germany, leading to industrial contraction, job losses, and increased market volatility. The elimination of EU-US tariffs further complicates the landscape, suggesting a continued period of intense competition and restructuring for European chemical producers.