A trade war is an economic dispute between two countries. It can occur when one country retaliates against another’s perceived unfair trading practices with restrictions, such as tariffs on imports.

US-China Trade War: Key Events and Developments
The US-China trade conflict began in 2018 during President Trump’s first term, driven by the US goal to address what it saw as unfair trade practices and forced technology transfers by China. In response, China accused the US of protectionism and hit back with retaliatory tariffs. Although a phase-one deal was signed in 2020, the agreed targets were never fully achieved.

Under the Biden administration, most of these tariffs were kept in place, with new ones added on strategic products like electric vehicles and solar panels. The situation escalated dramatically in 2025 during Trump’s second term, when the US imposed tariffs as high as 145 per cent on Chinese goods, prompting China to respond with 125 per cent tariffs on US exports. This intense trade war threatens to reduce global merchandise trade by 0.2 per cent, even as both countries continue to negotiate and offer selective exemptions.

On April 9, 2025, the US President signed an Executive Order that overhauled the tariff policy, taking effect the next day. The new policy introduced a flat 10 per cent tariff for most US trading partners—including Mexico, Canada, and others—while imposing a much higher 125 per cent tariff on goods from China, Hong Kong, and Macau, further raising tensions.

However, on May 14, the US softened its approach by temporarily reducing tariffs on Chinese and Hong Kong goods from 145 per cent to 30 per cent for a 90-day period, likely to create room for ongoing talks. China responded by lowering its tariffs on US goods from 125 per cent to 10 per cent. Despite the headline rate of 10 per cent, effective tariffs remain higher depending on the types of goods imported and various exemptions. As of May 20, Canada faces an effective tariff rate of 17.2 per cent, Mexico 14.7 per cent, the Rest of the World averages 11 per cent, while China still bears the highest effective rate at 33.2 per cent.

Chemical Industry as a Key Stakeholder
The chemical industry is particularly vulnerable to tariffs because of its heavy dependence on global supply chains and imported raw materials. Many essential chemicals and intermediates used in US manufacturing are sourced from abroad, so tariffs directly increase the cost of these imports. This puts immediate financial pressure on chemical companies, especially smaller ones that operate on tight margins and cannot easily absorb the added costs. As a result, they may be forced to raise prices, cut production, or shift to more expensive suppliers—all of which can disrupt operations and reduce profitability. Additionally, because the chemical industry supplies core materials to major sectors like pharmaceuticals, electronics, agriculture, and automotive, any cost increases or supply disruptions caused by tariffs quickly ripple through the wider economy.

How US Tariff Reshaped the Chemical Trade
When Washington hit China with waves of Section 301 tariffs, the chemical sector had to face collateral damage. Suddenly, everything from plastic pellets to pharmaceutical ingredients carried hefty 7.5-25 per cent price hikes—costs that rippled through factories, laboratories, and global supply chains.

The Domino Effect

  • American buyers slashed Chinese chemical imports by nearly 30 per cent, scrambling to source alternatives from Germany, India (up 18 per cent), Mexico (up 12 per cent), and Vietnam (up 25 per cent).
  • China retaliated by freezing out US chemical exports, leaving container-loads of polyethylene and PVC stranded at docks.
  • The EU joined the fray, imposing 10-15 per cent tariffs on US ethanol, wiping out $2 billion in American sales.

Major Chemicals Caught in the Crossfire
The trade war hammered products at every stage of production:

  • Basic Building Blocks: Ethylene, sodium hydroxide, sulphuric acid.
  • Everyday Plastics: Polyethylene, PVC, polycarbonates.
  • Specialty Ingredients: Titanium dioxide, adhesives, semiconductor chemicals (photoresists, high-purity gases), which faced 25 per cent tariffs, raising costs for US technology firms.

The Economic Impact on US chemical manufacturers
The US tariffs on 1,500+ chemical products have created both challenges and opportunities. These measures increased production costs by 8-25 per cent for the 20 per cent of raw materials imported from China, while supply chain rerouting added 30-45 days to delivery times. Pharmaceutical manufacturers were particularly affected, with 70 per cent of antibiotic ingredients becoming 8-10 per cent more expensive.

Specialty chemical producers face acute pressure, struggling with higher costs for materials often unavailable at scale domestically. The 16.5 per cent of US chemical imports from China (2023) now require urgent alternatives, forcing companies to balance existing contracts with necessary adaptations.

However, positive trends are emerging. The narrowing import-domestic price gap has spurred reshoring, reflected in a 17 per cent YoY patent increase. Friend-shoring is accelerating too, with EU chemical exports to the US up 9 per cent and India/Mexico filling gaps. While transition costs remain high, these shifts may ultimately build a more resilient, self-sufficient industry.

The Impact of Tariff on Chinese Chemical Manufacturers
The US’s 33.2 per cent effective tariff on Chinese goods has dramatically reshaped global chemical trade flows. With China previously accounting for 16.5 per cent of US chemical imports (2023), American firms are rapidly seeking alternative suppliers, forcing Chinese manufacturers to pivot strategically. This shift has seen China’s chemical exports to the EU and ASEAN grow by 18 per cent, though often at reduced prices that risk creating global oversupply. The semiconductor sector has been particularly impacted, with US-China joint R&D projects plummeting 40 per cent since 2023 (Brookings Institution), demonstrating how tariffs are disrupting technological collaboration alongside trade.

Chinese chemical producers have proven surprisingly resilient, with many able to absorb tariffs up to 50 per cent on US imports. Rather than cutting production, they are aggressively redirecting exports to non-US markets, potentially flooding regions like Southeast Asia, Africa, and India with competitively priced chemicals. This strategy risks triggering price wars that could destabilise local producers worldwide. While China’s 10 per cent tariff on US chemical imports remains manageable, the broader market faces volatility as trade patterns reconfigure. The chemical industry now confronts a new reality where geopolitical tensions are reshaping decades-old supply chains, with both challenges and opportunities emerging across global markets.

Impact of Tariff on Indian Chemical Sector
The US tariff hikes have created a complex scenario for India’s chemical industry, presenting both promising opportunities and formidable challenges. On one hand, the restrictions on Chinese imports have opened doors for Indian manufacturers, particularly in specialty chemicals and pharmaceuticals. The sector has already seen a 15 per cent boost in API exports to the US, while shipments to the EU grew by an impressive 22 per cent—clear signs that global buyers are diversifying their supply chains. Countries like Brazil are emerging as promising new markets, with potential to increase chemical exports from $2 billion to $3.5 billion. Even within the constrained US market, niche segments like polymers and additives are finding new competitive advantages against Chinese alternatives.

However, the situation comes with significant risks that could undermine these gains. The most pressing concern is the potential flood of discounted Chinese chemicals into Indian and other global markets, as Chinese manufacturers redirect their US-bound surplus. Industry projections suggest this could lead to a dramatic $2-7 billion decline in India’s US chemical exports by FY26, with specialty chemicals being particularly vulnerable. Smaller Indian exporters, already operating on thin margins, may struggle to compete with these dumped prices, even as larger firms manage to hold their ground.

Looking ahead, while the government is actively working to strengthen domestic production capabilities, companies must remain nimble to navigate this evolving trade landscape. The path forward requires careful balancing—capitalising on new export opportunities while developing strategies to counter price pressures from redirected Chinese exports. Those who can adapt quickly may find themselves well-positioned in a global market that is being fundamentally reshaped by these trade realignments. The coming years will test the sector’s resilience, but also present unprecedented chances for growth and market expansion.