US-China Trade War: The Global Conflict and its Impact on GCC Economies

The world anxiously watches as the two economic superpowers – the United States (US) and China – remain embroiled in a trade war whose impact is expected to spill over to other countries across continents.

As of this writing, the US Government has already slapped three rounds of tariffs on Chinese goods valued at USD 250 billion since the conflict began early this year, forcing China to impose substantial retaliatory tariffs on American goods.

Affected products are wide ranging, from food to steel, aluminum, and minerals to consumer goods. Many global markets, including the GCC region, are closely monitoring how things are unfolding to take necessary steps, if need be, of their own to mitigate the effects of the ongoing international trade clash.

In the GCC, experts are weighing in on how the US-China trade war is going to affect the region particularly Saudi Arabia and the UAE. The Gulf has strong trade ties with US and China alike.

The region is the largest exporter to the US, while the total trade with China almost hit the USD 110-billion mark in 2017, economists have reported. Additionally, China is, in fact, considered the biggest crude oil customer of the entire Middle East region.

If the trade war results in the slowdown of both the American and Chinese economies, it will undoubtedly impact the GCC given their strategic ties. Orders coming from the mainland, for one, might experience a decline, hence, it could lead to lower profits for the regional crude companies exporting to China.

Additionally, since the UAE dirham and Saudi riyal are pegged to the US dollar, which is expected to be affected in case of an escalation, the two countries might face vulnerability in financial market fluctuations, according to reports.

Experts predict a significant impact as well on regional equity markets, local stocks, inflation, and interest rates, among others.

In terms of aluminum tariffs, the GCC, a major international aluminum exporter, might also witness slower demand from the US and China markets in case of weakened economies brought about by their ongoing trade dispute.

In the midst of unfavorable outlook, however, the situation is not all doom and gloom. The economic bulletin issued by Dubai Chamber of Commerce, for instance, has assured that the UAE and some other GCC countries are going to benefit as both China and the US look for new trade partners for select products with relatively lower tariffs to import or export goods.

Furthermore, experts believe that the small and medium enterprise (SME) sector in the UAE, a major transshipment point, and wider Middle East region will enjoy some gains.

Many local and regional SMEs are the main importers and re-exporters of Chinese items and, as such, they are seen to play a pivotal role in the global economy amid major market challenges.

Under this perspective, the Gulf countries are expected to play an important role on the international stage. Considering also their financial resources and economic resiliency thanks in part to their aggressive economic diversification policies, the GCC economies are in an excellent position to bounce back from whatever setbacks the trade dispute between the two economic superpowers may bring.

New negotiations are a welcome respite and a good indication that both parties are open to resolving their conflict. The GCC member states continue to remain vigilant and it is rightfully so for a region that also relies on smooth global trade system to secure a strong economic edge and competitiveness in today’s modern world.