Chemicals Industry and Freight Rails Brace for Trump Tariffs on Canada, Mexico

The re-election of Donald Trump has sparked concerns within the chemicals industry and freight rail sector, as the President-elect has threatened to impose 25% tariffs on goods from Canada and Mexico starting February 1. This move could have significant implications for supply chains, production costs, and ultimately, U.S. consumers and businesses.

Supply Chain Disruptions and Increased Costs

The chemicals industry is heavily reliant on cross-border trade with Canada and Mexico. Canada is the top trading partner of the U.S. for critical chemicals, with U.S. firms selling more than $28 billion in chemicals to customers in Canada annually. Mexico is also a significant supplier, with $25 billion in chemicals exported to the U.S. annually. A 25% tariff on these goods could lead to supply chain disruptions and increased prices for downstream industries that rely on these chemicals.

Railroads play a critical role in the movement of chemicals across the U.S. and Canada, with Canada being the No. 1 source of chemical imports to the U.S. A 25% tariff could disrupt this interconnected rail network, underpinning economic growth and supply chain resilience. In 2023, rail transported approximately $113.8 billion worth of goods across the U.S.-Canada border, accounting for 15% of total trade between the two nations.

Impact on U.S. Consumers and Businesses

Higher production costs for chemical manufacturers would likely be passed on to consumers in the form of increased prices for goods that rely on chemicals in their production, such as plastics, fertilizers, and pharmaceuticals. Businesses that use these chemicals as inputs would also face higher costs, potentially leading to reduced profitability or job losses.

The U.S. is also the largest supplier of energy imports to Canada, including crude oil, natural gas, and electricity. A 25% tariff on these energy products could lead to higher energy prices for U.S. consumers and businesses, potentially slowing economic growth and increasing inflation.

Strategic Moves for the Chemicals Industry

To mitigate the risks and capitalize on new opportunities, chemical companies can consider the following strategic moves:

1. Diversify Supply Chains: Companies can explore alternative sources for critical minerals and chemicals, reducing reliance on a single country or region.
2. Invest in Local Production: Establishing or expanding production facilities in the U.S. can help reduce exposure to tariffs and lower transportation costs.
3. Tariff Engineering: Companies can optimize their supply chains to minimize tariff exposure by adjusting product formulations, sourcing materials from different countries, or relocating production facilities.
4. Country of Origin Changes: Companies can explore changing the country of origin for their products to avoid tariffs by adjusting product compositions or relocating production.
5. First Sale: Companies can take advantage of the "first sale" rule to avoid tariffs on imported goods by selling goods to a third party before importing them into the U.S.
6. Foreign Trade Zones (FTZs) and Bonded Warehouses: Companies can use FTZs or bonded warehouses to store goods duty-free until they are ready to be sold in the U.S., providing flexibility in managing inventory and avoiding tariffs.




In conclusion, Trump's proposed tariffs on Canada and Mexico could have significant implications for the chemicals industry and freight rail sector, potentially disrupting supply chains, increasing production costs, and affecting U.S. consumers and businesses. Chemical companies must adapt and strategize to mitigate these risks and capitalize on new opportunities in the global market.