Complex Made Simple

Here’s how the US tariff trade war with China will impact Saudi and UAE

Global intelligence site Stratfor said new US tariff regulations target Chinese goods worth $50 billion according to U.S. officials and $60 billion according to US president Trump.

Last week, President Trump implemented his promised trade tariffs, imposing 25% and 10% on steel and aluminum imports.

Tariffs, no matter their origins, will find their way onto your pockets, making more expensive on consumers globally but also in Saudi and the UAE.

That’s because these Arab countries are major traders with China and the fallout with the US means that Chinese imports are likely to be pricier.

According to Trading Economics, China represents 12 percent of Saudi exports and 13 percent of imports.

Dubai’s main trading partner is China, with 13% of trade and according to Global Edge in 2016, Chinese imports to the UAE reached $22.4 bn while exports to Hong Kong were at $3.75 bn.

Video: Top 7 Saudi Crown Prince objectives on current overseas trip

Tit for tat

According to Stratfor, the White House’s fact sheet lays out plans to levy a 25% tariff on roughly 1,300 Chinese goods, likely in strategic sectors such as information technology, robotics, advanced rail and shipping, new energy vehicles, and high-tech medicine and health care.

“Beijing is sure to fire back with retaliatory measures on the United States and the $130.3 billion worth of goods it exported to China last year,” said Stratfor.

According to the South China morning Post, a commentary on Saturday, by People’s Daily warned that in the event of a trade war, US firms like Intel, Qualcomm, Texas Instruments and Micron Technology would be among the hardest hit.

This higher tariff scenario means that mobile and technology prices will go up in any market where china exports.

The Chinese government also has raised the possibility of dropping aircraft orders from U.S. aerospace firm Boeing Co. in favor of France’s Airbus, according to Stratfor.

VIDEO: Bitcoin at $30,000 end 2018? This is why it’s likely to happen

Impacts: Sector by sector

An article written by Frank Kane is an award-winning business journalist based in Dubai to Arab News, he said that even though the region does not manufacture and export very much apart from crude oil and gas, the Middle East could get caught in the crossfire of a global trade war.

“Demand for those energy products depends largely on the needs of industrial and commercial producers, especially in China, which is the region’s biggest customer for crude and increasingly for gas too. If the Chinese and other Asian economies slow down as a result of a trade war, it is bad news for the region’s biggest export earner,” he said.
1-Silk Road

According to Asia Times, the New Silk Roads, or the Belt and Road Initiative, involve six key economic corridors, connecting Asia, the Middle East, North Africa and Europe.

One, in particular, extends through the Middle East to North Africa.

“China-Arab trade was worth $250 billion in 2014 and is rising. China is now the largest exporter to assorted MENA nations, while MENA accounts for 40% of Beijing’s oil imports,” said the daily.

“The next stage surrounding energy will be the implementation of a maze of LNG, or liquefied natural gas, pipelines, power grids, power plants and even green projects, sprouting up across the new Silk Road corridors and transit routes.”

According to the Asian Development Bank, the myriad of Belt and Road infrastructure projects for the next 15 years could hit a staggering $26 trillion.

Watch Saudi under attack: Houthis escalate their terror campaign on Riyadh

2- Protectionist policies

Forbes said that the UAE would find itself in an interesting position if concerns of a trade war increased.

“If other markets began adopting a protectionist stance, it might lead to less demand for some of the U.A.E.’s exports,” Forbes said.

3- Currency fluctuation

Potential fluctuations in the financial markets are another factor that could impact the UAE, whose Dirham is pegged to the Dollar said Forbes.

Same for Saudi Riyal.

4-Equity markets

Where the Gulf and GCC might also see repercussions from a trade war would be in the equity markets and local stocks, according to Forbes.

“Emerging markets rely heavily on risk appetite from investors, and it is highly probable that in the event of a trade war investor attitude towards risk would diminish,” said Forbes.

Read: 13 things you didn’t know about Facebook CEO Mark Zuckerberg

5-Ongoing business

Saudi has a lot hanging in the balance. With announced arms deals worth $150bn as a start with the US and $65bn in refinery and petrochemical deals struck last year with China, according to Financial Times (FT), price fluctuations including steel, aluminum could jack project prices up on both ends.

Dubai’s DIFC said it had 1,648 active registered companies in 2016 and about 11% of them are from Asia, a proportion that is forecast to rise, according to FT.