The global trade war unleashed by U.S. President Donald Trump shows no signs of abating, with tit-for-tat tariffs hammering major economies, plunging stock markets and dimming growth prospects.
The economies involved — North America, the European Union and China — face a highly uncertain future. But for the Middle East, which has so far escaped the imposition of additional taxes, there is reason for concern — and opportunities to exploit.
Economists say the direct impact of tariffs, such as those imposed by the United States on steel and aluminum imports, will be minimal in the Middle East. Carla Slim, Middle East and North Africa economist at Standard Chartered Bank For example, the Gulf region accounts for about 16% of U.S. aluminum imports, with the UAE and Bahrain at the top. Analysts say that while those sectors could be affected, the hit will be small.
But the trade war’s hit to growth could hurt the price of oil, the backbone of the region’s economies. Countries with currencies pegged to the dollar, such as Saudi Arabia, the UAE, Qatar, Oman and Bahrain, would also suffer immediately.
The dollar has continued to weaken since the start of the year, making imports more expensive for countries that peg their economies to the greenback – a challenge for a region that is highly dependent on overseas goods.
Trade tariffs imposed by the United States typically make the dollar stronger over time – if that happens, oil becomes more expensive because it is traded in dollars. This will provide an initial boost to Middle Eastern countries that export oil.
But there could be bad news ahead as oil demand slows due to weak global trade and shipping.
“The macro outlook for the MENA region will be affected by global tariff uncertainty, which will be reflected indirectly through oil prices, while tariffs and macro uncertainty will continue to weigh on Brent prices.”
However, since the 2014 oil price shock, many economies have implemented structural reforms and diversification programs to reduce their reliance on oil revenues.
“We believe that strengthening domestic demand resilience remains the best lever to protect the local economy from global external shocks,” said Slim.
However, despite diversification efforts, oil “still accounts for the largest share of revenues,” said Edward Bell, acting chief economist at Emirates NBD.
“For economies like the UAE that are highly open to trade and act as global trade facilitators through extensive infrastructure and logistics links, a decline in global trade will also serve as an external headwind to growth,” Bell noted.
A stronger dollar also means higher costs for servicing dollar-denominated debt. For Lebanon, Jordan and Egypt, where external debt levels are particularly high, this is a major issue that could cause significant economic pain.
Jordan is the most vulnerable country in the region to a tariff war because of its high dependence on the United States for exports, said James Swanston, senior emerging markets economist at Capital Economics in London. Nearly 25% of Jordan’s exports, mostly textiles and jewelry, go to the U.S. market.