Rubber industry braces for the impact of tariff crossfire

The rubber industry is currently navigating a pivotal moment in its long-term planning, following the results of the US election and the upcoming stimulus announcement from China. Escalating trade tensions between the US and China have spawned tariffs on various products from both countries.

Now with Trump’s victory in the US elections, market observers are cautious. During Trump's first presidential term in 2017, the trade war intensified, significantly influencing the overall sentiment of the market.

Initial market reaction 

Donald Trump's win of the US presidential election might have nudged the price of rubber up, but the prospect of steep tariffs and a surging US dollar added to the uncertainty in the market. 

The spot rubber price inched up in the range of 1%-3% since Tuesday as the market reacted to what a second Trump administration could mean for the markets. However, the market participants are expecting a favorable stimulus announcement from China this weekend, which could mitigate the potential effects of the US election outcomes. 

However, one cannot undermine the potential impact of China tariffs. This situation is anticipated to yield adverse effects on the rubber market, given China's significant impact on both the electric vehicle and rubber industries. 

A producer source suggested that the outcomes of the US election could potentially reinvigorate the bullish trend in the rubber sector, but only in the short- to mid-term. Once the trade war intensifies, it will start to take a toll on rubber demand and prices. During the campaign trail, Trump indicated the possibility of implementing additional tariffs of 60% or higher on Chinese imports to the U.S.

Some market observers believe that the increasing sanctions against China could lead to advantageous investment prospects in other emerging economies. On the other hand, the potential imposition of blanket tariffs on China would also pose a significant concern for Southeast Asian nations, which might witness an influx of inexpensive Chinese EVs or tiers redirected to these markets due to restrictions in the American market.

What has it been like since 2017?

Trump targeted tariffs during his previous administration. During his 2017-2021 presidency, he kicked off a tariff war with China.

2018

The Trump administration has declared extensive tariffs on Chinese imports, totalling a minimum of $50 billion. The measures, following the imposition of tariffs on steel and aluminium imports, specifically focused on goods such as clothing, shoes, and electronics while also placing restrictions on certain Chinese investments within the United States.

China implemented retaliatory measures targeting various U.S. products, resulting in the escalation of a trade conflict between the two economies globally.

2019

Trump’s administration implemented an increase in tariffs from 10% to 25% on $200 billion of imports from China. The administration implemented countervailing duties ranging from 21% to 63.3% and antidumping duties of 9% to 22.6% on Chinese truck and bus tires. China responded by raising tariffs on American goods valued at $60 billion.

2020

Phase one saw the implementation of an agreement that eased certain U.S. tariffs on imports from China and obligated China to purchase an additional $200 billion in American goods, including agricultural products and automobiles, within a two-year timeframe.

2024

Earlier this year, the U.S. implemented a series of incremental tariff hikes on approximately $18 billion of imports from China, targeting various strategic sectors including steel and aluminum, semiconductors and electric vehicles (EVs), and batteries. The antidumping and countervailing duty orders on Chinese truck and bus tires have been extended.

Impact on Chinese trade flow

The ongoing trade war has taken a toll on Chinese demand. With the EV market underscanner, the impact on the rubber market is likely to be more predominant. The graph below shows the export trend for Chinese tires versus the Chinese rubber import trend. 

* only includes data of new pneumatic tires and retreaded tires for the auto sector from Jan-Sept 2024

Source: Helixtap & customs data

Following the initial tariff implementation in 2019, the US experienced a significant decline in tire exports, with a 55% decrease in exports in 2019 compared to 2018. Strong demand from other markets such as Europe and the Middle East, along with a relatively better-performing economy, limited the impact on rubber demand.

However, despite a slight improvement in 2020, tire exports to the US fell significantly short of their peak in 2018. The exports then dropped in 2022 onwards amid weakness in the auto sector coupled with the countervailing and antidumping duties implemented in 2019. The post-pandemic recovery in China capped the impact on imports.

The situation might not be straightforward this time. Following the extension of countervailing and antidumping duties on tires, the possibility of a higher tariff could significantly impact Chinese exports.

The market for Chinese goods becomes limited as other regions such as Canada and the European Union join the tariff battle. In 2018, the robust real estate sector contributed to China's overall economic activity, facilitating China's ability to mitigate the impact of the tariff adjustments. 

However, since 2021, the real estate market has experienced a significant decline, resulting in a sharp decrease in local government revenues. The focus thus shifted toward enhancing the export-driven manufacturing sector, which led to the imposition of tariffs in the United States, Europe, Turkey, and other regions.

China is currently the global producer of electric vehicles, accounting for 60% of global sales. Amid the weakness in the domestic demand, due to tariffs, China might take a hit on the export, in turn impacting the demand for rubber. 

At present, focus is on China's forthcoming stimulus decision, expected to be announced later this week. Market sources suggest that China is poised to introduce significant stimulus measures to address the repercussions of the US election results. 

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