Shifting sands: GCC tariffs in an age of economic nationalism

Arab News

a day ago

https://arab.news/zyvuf
In an era of increasing global protectionism, the Gulf Cooperation Council countries find themselves at a crossroads, contemplating trade policies that were previously unnecessary in their oil-driven economies.
While economists have long maintained that tariffs harm international trade, reduce market competition, and ultimately hurt consumers through higher prices and limited choices, the changing global landscape presents a strong case for the strategic tariff implementation in the Gulf region.
Historically, GCC economies have operated from a position of strength, with massive oil exports generating substantial trade surpluses and foreign currency reserves. This economic reality, combined with a relatively small manufacturing base and limited need for tax revenue, meant that protective trade measures were largely unnecessary.
However, the growing trend toward trade barriers and economic nationalism requires a reexamination of this policy. While crude oil faces few direct tariffs, it encounters significant indirect barriers in major economies, including substantial fuel excise duties, generous subsidies for alternative energy sources, and various environmental regulations and carbon taxes. These measures effectively function as non-tariff barriers, dampening demand while raising costs for consumers in importing nations.
This situation creates a compelling case for reciprocal measures by GCC countries, especially in the current environment. The risk of retaliation to any GCC-imposed tariffs appears minimal, as developing nations can ill afford to further tax fuel imports, while developed countries have already implemented extensive penalties on fossil fuels and subsidies for alternatives.
This asymmetry in trade relationships provides the GCC with a unique opportunity to implement tariffs without facing significant economic backlash.
The revenue potential of strategic tariffs is considerable. Saudi Arabia, for instance, imports approximately $75 billion worth of goods from Europe and North America annually. A 10 percent baseline tariff on these imports would generate over $7 billion in revenue, which could be directed toward supporting local industries and economic diversification efforts.
This approach would complement the existing value-added tax, which has proven successful but may be difficult to increase beyond current levels in Saudi Arabia, for example. One advantage of tariffs is that they can target foreign products while sparing domestic businesses, potentially fostering local industrial development.
This selectivity could be further refined by implementing exemptions for essential items such as pharmaceuticals and agricultural products, ensuring that basic consumer needs are not significantly impacted.
The current global economic climate suggests that protectionist measures will remain a significant feature of international trade for the foreseeable future.
The question for GCC nations is not whether tariffs are theoretically optimal, but how to respond pragmatically to an increasingly protectionist world.
A measured approach — with a moderate tariff rate and carefully considered exemptions — could achieve multiple objectives. It would generate meaningful revenue, preserve foreign currency reserves, and provide modest protection for domestic industries. Such a policy could be designed to avoid excessive disruption to import patterns while still creating incentives for local production and economic diversification.
The GCC's position in this evolving trade landscape is unique, as it enters the tariff debate from a position of relative economic strength. This allows for a more strategic and measured approach to tariff implementation, rather than reactive protectionism.
While the fundamental economic arguments against tariffs remain valid, the practical realities of the current international trade environment may necessitate a recalibration of traditional free-trade positions.
The challenge lies in crafting policies that can generate revenue and protect domestic interests while minimizing economic distortions and maintaining crucial international relationships.
The path forward for the GCC will require careful balancing of these competing interests, but the case for selective tariff implementation appears increasingly justified in today's global context.
The question is no longer whether tariffs will play a role in international trade, but how the GCC will position itself in this new economic reality.