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Trends And Predictions For The Chemicals Industry (Part Two)

Regulations, trade and the shifting global power.

It’s no secret that 2017 is going to be a year of major changes politically speaking — and those shifts could translate into a new outlook for the economy and chemicals industry.

“How everything is going to unfold is determined by the fact that we are living in a Trumpian world,” Fred Choumert, a principal with Roland Berger says.

Here are some major trends the global strategy consulting firm has identified for the industry:

Shrinking Regulations

President Trump’s rollback of regulations has been big news for the industry. Trump recently signed an executive order saying that for every new rule, two existing regulations have to be removed. He’s also vowed to cut regulations “up to 75 percent.”

Choumert says this new world of decreasing regulations will likely help ramp up fossil fuel production.

According to analysis by Roland Berger, these changes could then translate into big increases for the country’s GDP.

“Most forecasts expect the U.S. economy to grow by about 2 percent every year. The Trump effect could be an additional 2 percent on top of that,” Choumert says.

Because demand for chemicals is highly correlated with GDP growth, these changes could be a boon for the industry.

Tricks in Trade

Even though Trump has promised to dramatically change how the U.S. makes global trade deals, there’s no denying that open borders are generally good for business.

Recently, Trump signed an executive order pulling the U.S. out of the Trans Pacific Partnership (TPP), a far-reaching deal with 11 other countries including Japan and Vietnam. He’s also promised to renegotiate America’s position in the North American Free Trade Agreement (NAFTA).

However, he’s not pulling America out of these deals entirely. In the Pacific region, for example, he’s promised to negotiate agreements with the individual countries in the deal.

“Most people don’t believe that TPP and NAFTA are going to go away all together,” Choumert says.

While Choumert agrees that a new approach to trade deals might be incrementally good, he says that at some point it’s going to be detrimental to businesses here.

“If you raise the barriers on some of the imports you might have a positive effect on the U.S., but if you go too far, you might increase the costs of goods in the U.S. too much,” he cautions.

Jonathon Wright, a Partner in chemicals at Roland and Berger, agrees. He points out — as many have — that decreases in manufacturing jobs have been often been driven by technology, and not trade deals.

“Manufacturers in the U.S. are investing in the next big technology: robotics,” he says. “In some industries, that may be the lowest cost approach. So ‘Make America Great Again’ may not create a lot of jobs.”

Changing Global Powers

Remember when BRIC was a thing? Those days have passed, Wright and Choumert say.

An acronym that refers to Brazil, Russia, India and China, BRIC was used a few years ago to refer to the world’s major emerging economies. But times have changed.

“BRIC has crumbled,” Choumert says. “Both Brazil and Russia have such resource-dependent economies, there’s not much happening there.”

Now, Choumert says there are two poles of economic might: China and the U.S. And it’s these two economies that are driving global market trends.

Although there have been concerns that China could be in a recession, Choumert says the country has a good understanding on the fundamentals of running a stable economy. It is also making more goods for its own market.

“Companies exporting to China are now facing significant competition within China,” Choumert says.

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