Industry
Manufacturing
Future-Ready Manufacturing: Partnering in your journey to a sustainable manufacturing enterprise
Highlights
- Tariff exposure for the chemical supply chain can be very significant in some markets. Rising tariffs have immensely impacted the chemical industry, which is heavily dependent on imported raw materials.
- Approximately 20% of trade occurs between geographically distant economy pairs. A concentrated supply can become a strategic vulnerability.
- For specialty chemicals that rely on tight lead times, coupled with tariff related uncertainty, this is an operational shock.
- Firms that move from reactive to scenario-driven strategic planning will be best placed to protect margins, secure supply, and turn disruptions due to tariffs into an advantage.
Overview
The chemical industry is the connective tissue of modern manufacturing — feeding plastics, pharmaceuticals, agrochemicals, coatings, and countless intermediates.
Its products are globally traded, energy-intensive, and often produced in concentrated regional clusters. That makes the sector highly sensitive to trade policies. In recent years, the industry attracts new tariff regimes, but it impacts supply chain resilience, operational cost and strategic decision making.
- The global chemical-industry value was ~USD 6.3 trillion in 2025 (specialty chemicals -~18.3%; petrochemicals - ~10.7%; plastics - ~9.6%; base chemicals - ~10.6%; others like gases, adhesive, catalyst etc. -~42.3%)
- Chemicals account for about 10% of world trade value (among top 10 products).
- The global chemicals trade ecosystem contributes ~USD 2 trillion in trade value through major industry members.
- The policy and route risk are rising. As per the United Nations Conference on Trade and Development (UNCTAD), shipping volatility is growing along with increasing average shipping distances (from ~4,831 miles in 2018 to ~5,245 miles in 2024). It also shows that maritime trade growth in 2025 decreased by 0.5% because of tariffs and other pressures.
- Tariff exposure for the chemical supply chain can be very significant in some markets. Rising tariffs have immensely impacted the chemical industry, which is heavily dependent on imported raw materials.
Impact of tariffs
Tariffs have a major impact on the overall supply chain of chemical industry.
- Higher raw material costs: Many chemical intermediates (monomers, solvents, catalysts) cross borders multiple times. A duty on those inputs raises landed costs and squeezes margins — especially for commodity and mid-stream firms.
- Higher inventory and working-capital: To avoid repeated tariff exposure or sudden policy moves, buyers often increase safety stocks or order earlier. This results in higher stocks in warehouses and high requirement of working capital.
- Administrative burden and delays: Tariffs increase customs paperwork, rules-of-origin verification and classification disputes, which directly impact cost in terms of fines, or hold-ups that disrupt just-in-time operations.
- Longer and costlier routes: Conflicts in critical chokepoints (e.g., Red Sea, Strait of Hormuz) have in the past forced vessels to reroute around Africa, raising transit time (10-20 days more) and freight rates. Coupled with tariff related uncertainty, for specialty chemicals that rely on tight lead times, this is an operational shock.
- Feedstock vulnerability: Petrochemical feedstocks (naphtha, ethane, propane) track global energy markets. Sanctions or export controls can make a region’s cost advantage vanish overnight, shifting where production is cheapest and altering trade flows.
- Fragmentation of supply networks: As per global trade share, it is found that ~20% trade occurs between geographically distant economy pairs. Some major economies have reduced trade exposure to geographically distant partners, which signals a trend toward regionalization for sensitive goods. This is crucial for chemicals because concentrated supply becomes a strategic vulnerability.
Strategic Levers
Strategic levers to tackle tariffs for the chemical industry.
- Map exposures granularly: Tag SKUs by input tariff exposure, single-source risk, route dependency and regulatory/dual-use risk. Data-driven mapping is one prerequisite for good choices.
- Diversify suppliers and locations: Evaluate nearshoring for specialty product lines where speed and regulatory certainty matter. Some of the analyses suggest firms are already reorienting some trade toward closer partners.
- Scenario planning: Simulate various scenarios with tariff shocks, route closures, and sanction to quantify margin, cash and service-level impacts. Prioritize actions where downside is largest.
- Advance data and analytics: The supply chain is full of uncertainty, and those uncertainties can be predicted using machine learning/ deep learning techniques. Multi-criteria decision-making techniques can help in selection of local suppliers while optimization helps to generate dynamic manufacturing and delivery plans. Scenario planning can be done using simulation.
- Strengthen customs and compliance: Automate classification and rules-of-origin checks, invest in tariff-engineering where feasible (redesigning product flows to qualify for preferential regimes using bonded warehouses, for example).
- Use strategic inventory selectively: For a small number of critical intermediates, maintain strategic buffers and pair them with financial hedges (energy or currency swaps, collar options) when feasible.
- Engage policy channels: Shape pragmatic exemptions and avoid blunt measures that damage downstream manufacturing. Industry groups account for much of chemical trade activity and hence have leverage.
Key Takeaway
Tariffs are no longer episodic risks; they are structural features shaping the chemical value chain.
The levers companies can control — noted above— are straightforward on paper but operationally demanding. Firms that move from reactive to scenario-driven strategic planning will be best placed to protect margin, secure supply, and turn disruption into advantage. Advance analytics along with agentic AI can be a new lever to overcome the intricacies of chemical supply chain.