The imminent U.S. election: How will it affect the polyester industry chain?

Trade Policies and Tariffs

The election results will profoundly impact trade policies over the next four years. Harris is likely to continue Biden's approach, favoring selective tariffs aimed at countering China, which could mitigate impacts on consumers. In contrast, a Trump victory may lead to more aggressive trade measures, increasing tariffs and supply chain restrictions. This scenario could exacerbate U.S.-China trade tensions, disrupting global supply chains and the polyester industry.

During Trump's previous administration, between 2017 and 2020, the Trump administration imposed tariffs on approximately $370 billion worth of Chinese goods, raising the average tariff rate from 3% to 19%. This increase resulted in higher costs for Chinese products in the U.S. market, leading to a substantial decline in China's exports to the U.S. and a slowdown in overall export growth. The tense relationship between the two largest economies in the world has also heightened uncertainties in international trade, suppressing global trade growth.

If Trump were to be re-elected, the implementation of such trade policies would likely lead to further decoupling of U.S.-China trade. This would have specific repercussions for the polyester industry chain, particularly in terms of raw material availability, production costs, and market dynamics.

Interconnectedness of PET Bottle Grade and Textile Exports

The imposition of tariffs has a limited direct impact on polyester raw materials and products, but it may significantly affect the export of textiles and apparel. Within the polyester supply chain, the production of bottle flakes is closely tied to textile manufacturing. Polyester bottle flakes are primarily made from polyethylene terephthalate (PET), which is also used to produce polyester staple fibers. Despite differences in end products, both sectors rely on the same polyester raw materials, resulting in interdependencies in supply chain dynamics and market behavior.

China's reliance on ethylene glycol imports has been decreasing annually, while U.S. exports of ethylene glycol to China are on the rise, highlighting the complexities of U.S.-China trade relations. Additionally, China's exports of polyester staple fibers to the U.S. represent a small fraction, indicating a diversification trend within China's polyester supply chain.

Although the U.S. remains a vital market for Chinese textiles, it is becoming increasingly saturated, prompting the search for new growth opportunities. Changes in textile exports may indirectly influence the bottle flake industry, particularly concerning demand and price fluctuations. For instance, if textile exports are adversely affected by tariffs, this could lead to a reduced demand for polyester raw materials, subsequently impacting bottle flake production.

Changes in Plastic Production and Management Policies

Before the Biden administration took office, U.S. plastic production and management policies primarily focused on increasing recycling rates and reducing improper waste disposal. The emphasis was on encouraging plastic innovation and using environmentally friendly alternatives, without imposing explicit restrictions on plastic production.

During Trump's administration, the United States had a low level of participation in international environmental agreements, emphasizing domestic free markets and industry self-regulation, which limited active engagement in global plastic restriction policies. This policy backdrop restricted the U.S.'s role in global plastic pollution management. Notably, the U.S. chose not to sign the "Plastic Waste Amendment" to the Basel Convention, further diminishing its international influence in this area.

However, upon taking office, the Biden administration adopted a more proactive environmental stance, advocating for global restrictions on plastic production as a fundamental solution to the plastic pollution crisis. This policy shift has garnered support from countries like those in the European Union and the UK but has sparked significant opposition within the U.S. plastic industry and among some political figures. Critics are concerned that these restrictions could negatively impact U.S. manufacturing and millions of jobs, heightening dependence on foreign supply chains.

As the United Nations summit approaches in Busan, South Korea, nations will continue final discussions on this treaty. Despite domestic pushback, the Biden administration seems inclined to endorse global plastic production limits, aiming to guide the world toward sustainable development. This policy shift could prompt other countries to adjust their environmental policies, fostering the formation of global environmental governance standards.

The change in policy not only influences domestic investment directions but also encourages research and development of environmentally friendly technologies and materials, further promoting the growth of the green economy. 

Economic Stimulus Policies and Exchange Rate Fluctuations

Regardless of whether the Republicans or Democrats win, significant economic stimulus measures are anticipated to boost economic growth and restore market confidence. These policies are likely to support risk assets and potentially drive up international oil prices. Rising oil prices will directly impact the cost structure of the polyester supply chain, particularly affecting the prices of raw materials like purified terephthalic acid (PTA) and monoethylene glycol (MEG), thereby influencing production costs and market pricing of final products.

Tariff policies and economic stimulus measures could also lead to upward pressure on U.S. inflation data. High inflation environments typically prompt the Federal Reserve to adopt tighter monetary policies, which would affect interest rate levels. Such changes will further influence corporate financing costs and investment decisions.

Additionally, fluctuations in the renminbi exchange rate will also be affected. Recent exchange rate movements indicate relative stability for the renminbi in international markets. However, a Trump victory could increase depreciation pressure on the renminbi, promoting short-term exports but potentially triggering trade retaliation measures.

Future Outlook

The outcome of the U.S. election is likely to trigger chain reactions in global markets, profoundly affecting commodity prices, investment confidence, and international trade dynamics, especially within the polyester supply chain. Analysts generally agree that as political uncertainty rises, market participants will closely monitor oil price movements and related policy changes to adjust investment strategies and market expectations accordingly.

Reference

1. China Chemical Fiber Information Network(October 30, 2024).The upcoming U.S. election: What impact will it have on the polyester industry chain? | CCF

2. GFIST(August 16, 2024).US says it now supports a more ambitious plastics treaty, to industry fury | Grist

3. PLASTIC NEWS(October 17, 2024). Republicans slam Biden for backing production caps in plastic treaty | Plastics News

4. FOX BUSINESS(August 15, 2024).Plastic manufacturers push back after Biden administration agrees to support global goal to cap production | Fox Business

5. IER(September 13, 2024).The Biden-Harris Administration Shifts Policy on Global Plastics' Production - IER