The US economy produces over 27 trillion pounds of chemicals each year, or about 86,000 pounds per person.
The volume of chemicals produced and consumed globally is expected to more than triple by 2050. Chemicals are used in the production of the majority of goods manufactured in the United States; they are present in the commodities we import, and we use a wide range of chemical products every day, from paint to cosmetics to pharmaceuticals. The chemical industry is still a cornerstone of American manufacturing, and it supports a wide range of jobs across the country. Approximately 4.2 million jobs in the economy are directly or indirectly related to the chemical industry's productive activities.
The chemical industry's primary sectors:
The chemical industry is diverse, with a wide range of products produced. These products are used in a variety of industrial and market settings. As a result, discussing broad product categories within the chemical industry is beneficial.
Five broad categories are particularly significant:
The chemical industry's current competitiveness model is as follows:
Previously, this article described how the chemical industry operates in relatively competitive markets. This is generally true of all non-pharmaceutical chemicals, and competition is especially fierce among commodity chemical producers. Cost-cutting is an important component of the chemical industry's overall competitive strategy in the United States. Even though output is increasing, the industry's poor performance in creating jobs suggests that labor productivity has increased significantly. One of the primary motivations for increasing labor productivity is to reduce costs — in this case, the labor costs associated with producing a specific quantity of product. The greater the productivity, the less labor is required in production, resulting in lower overall costs. If higher productivity is not matched by market growth, the result is fewer jobs.
This makes reorienting the industry to take advantage of emerging market opportunities, such as those promised by green chemistry, especially important if the goal is to keep American manufacturing jobs.
Cost reduction can also be achieved by passing costs on to consumers and users of the manufactured products. External costs are especially high in the chemical industry. They include:
The cost to consumers of toxic or unsafe products
The cost to workers exposed to hazardous substances
The cost to downstream users, who may have to pay for expensive storage, handling, and disposal systems for hazardous chemicals.
The cost to the environment, such as the release of toxic wastes.
Opportunities and challenges
There are currently significant new opportunities in developing alternatives to traditional chemical products.
• Building materials
• Flame retardants
• Personal care and household cleaners are examples of fast-growing markets.
The regulatory environment is changing, which has implications for the United States' competitiveness and access to global markets:
• New REACH regulations in the European Union
• Similar developments in other countries such as Canada and China
• State-level legislation to regulate toxic substances.
Toxic Substances Control Act reform is required to modernize the regulatory environment for the chemical industry.
Chemical industry research and development in the U.S.:
Throughout much of its industrial history, the United States has been a leader in chemical research and development, particularly during the rapid growth of manufacturing in the final decades of the nineteenth century and the first two-thirds of the twentieth century. Notably, the discipline of 'chemical engineering' was invented in the United States, demonstrating the type of university-industry collaboration that continues to contribute to economically valuable innovation. In the chemical industry, innovation has frequently involved scaling up laboratory research for industrial application. Petroleum companies have played a critical role in funding research and development in the United States chemical industry, particularly in the development of plastics and polymers.
Productivity and environmental regulations:
One argument against regulation is that it will reduce average productivity by diverting resources to meet regulatory requirements. According to this logic, more resources will be required to produce a given amount of output, implying that productivity will fall. Lower productivity raises average production costs and, as a result, undermines competitiveness. Given the potential negative impact on manufacturing output and employment, it is worthwhile to investigate these arguments further to see if they are valid. Productivity is commonly defined as the amount of output a company can produce with a given set of inputs and technology. However, when undesirable by-products (such as toxic wastes or potential hazards) are produced during the manufacturing process, this definition will overstate the chemical industry's productivity. As a result, productivity should be defined in such a way that the costs of hazardous wastes are considered, even if the firm does not bear the full cost of handling and safely disposing of these substances. A company that can produce the same amount of product with the same number of inputs while emitting less hazardous waste has increased its productivity. However, using a simple definition of productivity — the amount of product produced in relation to the number of inputs used — there would be no change in productivity.
The impact of information on market efficiency:
Regulations are about more than just production efficiency. A good regulatory infrastructure is also required for well-functioning markets. Agreements must be enforceable, and economic transactions necessitate the establishment of a legal framework. Markets also function best when both parties to a transaction have free access to information. Inadequate information can lead to significant market failures and inefficiency. The critical role of information in economic theory is widely accepted, and it has been used to shed light on the operation of product markets, labor markets, and credit markets.
The current state of institutions that collect and disseminate information on chemical products sold in the United States is appalling. We have already discussed how the federal reporting requirements are insufficient and uneven. State-level reforms may help fill this gap, but they also create a patchwork of regulatory requirements that vary from state to state. Internationally, the implementation of new standards, such as REACH in the European Union, will increase the availability of information. However, these reporting and disclosure requirements do not apply to markets in the United States. There is an urgent need for reform and upward harmonization of these standards, as well as significant improvements in the information gathering and dissemination infrastructure of the chemical product market in the United States.
Regulation and innovation
Opment (R&D) spending in the chemical industry, excluding pharmaceuticals, is low in comparison to the overall manufacturing sector. Because older chemicals grandfathered in under TSCA face fewer regulations, the Toxic Substances Control Act (TSCA) reduces incentives for the industry to innovate. To encourage innovation while maintaining a core set of protections for all chemical products, regulatory reform must level the playing field between new and existing chemicals. To encourage innovation, regulatory reform must be combined with complementary policies.
- One example is the Green Chemistry Research and Development Act, which has yet to be enacted in order to advance industry innovation.
- Policies that encourage collaboration among industry, academic research, and investors are critical for accelerating the commercialization of innovative technologies.