The most important reaction in chemistry is the one in which you transform chemicals into money. Some chemicals convert into a lot of money per kg, others not so much. The kind of money you want to focus on is profit. Just turning cash over at cost wears thin rapidly and is hazardous to your career. At the end of the day, after you’ve paid the raw mat vendors, payroll, and the feds, you want to have a steaming heap of luchre left over as profit.
At some point in the game, everyone in fine chemical manufacturing realizes that you can’t make everything in-house. There are good reasons to consider making as many intermediates as you can. When you buy an intermediate, the vendors price (cost + profit) becomes the cost you plug into the economics. Optimally, you might be able to make the material cheaper than buying it … eventually. But some raw materials are deceptively simple looking. A company can rack up a lot of brain damage and wasted time trying to make certain kinds of materials outside of your skill set.
We used to joke that at some point in process development, you have to shoot the chemist and get on with scale-up. Often, the decision to make-or-buy an intermediate gets to the table only after you try to make it. In process development, it is important to identify the make-or-buy decisions as early as possible. This can save valuable time. While you may end up spending more per unit mass for the material, not having to make it is equivalent to opening up extra capacity in your facility. Ideally, your want precious reactor/equipment hours spent on the highest value added steps. With each successive step, the value of the intermediate becomes greater.
If your make-or-buy decision revolves around a known item of commerce, then the economics and scheduling is relatively easy. You will have to settle on specifications, delivery schedule, shipment details, and pricing. If the material is not TSCA listed, then you will have to get the vendor moving early on a filing with the EPA, if they are in the USA. If you intend to import a non-TSCA listed fine chemical, not for pharma, ag, food, or other covered use, then the importer of record is responsible for the TSCA paperwork. This can take a few months of lead time.
But if the compound is novel and/or proprietary, then it is instantly much more complex. Not only do you have to deal with the EPA on TSCA filing, but you have to find a vendor who is willing and able to ramp up a new process. They will need specs, projected delivery information, an agreeable price, and quite possibly a lined-out process and analytical methods. If the vendor has available capacity, this might happen as quickly as 3-4 months. More likely than not, this can take 6-9 months.
If your raw material is part of a critical technology or major account, then you may have to consider dual sourcing. If one plant goes down or the quality or delivery drifts beyond what is acceptable, then you still have one facility that can deliver. And, if you have two vendors, you can start a dandy little bidding war between them for your business. Many companies require their purchasing managers to qualify two vendors for crucial materials. You can argue that you should always have two vendors, but many times the amount of business the material feeds into is too small to bother with.
Chemical manufacturing is much more than reaction chemistry. A chemist in manufacturing can find him/herself involved in many kinds of work. Regulations, chemistry, process safety, engineering, packaging issues, IP, marketing, and process economics add up to the knowledge set that a chemist needs to acquire while heading up the career ladder.
Lamentations on Chemistry 
Tell me why I should buy anything from you? Big China inc (BCI)can give it to me at one half the price (maybe twice the guilt).
Tell me, if not for some sort of protectionism, what is the US advantage?
Why shouldn’t I, as big chem consumer Inc. (a subsidiary of blob industries), not cut out US manufacturers? TSCA pish posh!
My BCI people tell me they’ve got massive unemployment and can get the workers to work for food only!
So set up an office in China and go for it. Knock yourself out. It’s a big world.
You are fretting over a boundary condition- i.e., that all manufacturing will go to China. It won’t. There will always be opportunity for manufacturing in the USA. The heavily commoditized stuff will go to locations like China, Mexico, Thailand, etc., as long as they can offer better price and availability.
There is a lot more to chemical industry than just the giant companies. The giant companies generally try to outsource smaller and more specialized raw materials rather than make them in-house. The giant company mindset favors high volume, continuous processing with large supply contracts. They work in the big dollar realm.
From my experience, I’d say that small sized (< $50 MM/y) manufacturers doing batch processing of higher value added products are, and have been, rather under represented in the US. Such companies tend to get acquired by larger companies and are rapidly forgotten.
In the non-commodity world of specialized products for niche application, the very obscurity of a product generally means that its pricing has not been subject to the full equilibration of competitive market forces. Therefore, it is possible for a manufacturer of a niche product to enjoy decent profit as long as they remain under the radar of the bigger market. Or, if they are making a custom product that the customer has decided to limit to one or two manufacturers. Not every product is worth going abroad to set up a custom supply arrangement.
The question with using tariffs, etc., to protect current jobs is: Why should I sacrifice other people’s money and jobs for yours? Because the money paid from tariffs (or the increased prices of goods competing against tariffed goods) has to come from somewhere, and the people buying it have to pay the cost in turn. If end customers can’t cut costs on their own (potentially by outsourcing) then they’ll have to buy less of something, or something else. Some people will end up paying with their jobs. Why someone else?
The other problem with tariffs is that the businesses benefiting don’t seem to invest in R+D (you know, something that would allow them to profit without tariffs) – they cash the money out, thus insuring that their businesses slowly die in place while their customers are screwed. They get to kill lots of businesses at once. What a deal.
“In the non-commodity world of specialized products for niche application, the very obscurity of a product generally means that its pricing has not been subject to the full equilibration of competitive market forces.”
Excellent reasoning. Although this assumes you can rapidly produce your product before external forces get a whiff.
Hap said-
“Because the money paid from tariffs (or the increased prices of goods competing against tariffed goods) has to come from somewhere, and the people buying it have to pay the cost in turn”.
In terms of finished goods the US companies will be able to produce a cheaper product than the tarriff laden import. We thus stimulate the US economy (which was the whole point). It will thus force foreign companies to produce a better product which justifies the extra cost. This in term stimulates domestic efficiency.
But when it comes to commodity tariffs, this is where the US can wield a heavy stick. We are the world’s greatest food exporter. Hence we can set the price. Not all players are equal.
Let Japan place a tarriff on US wheat. They’ll force their own people to pay the price or starve!
Have any of the tariffed businesses actually improved their products?