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Gulf economies avoid harshest Trump tariffs but do not escape unscathed

Gulf economies avoid harshest Trump tariffs but do not escape unscathed

The National02-04-2025

Gulf Co-operation Council countries were largely spared from US President Donald Trump's sweeping tariff announcement on Wednesday, but the new levies' effects will be felt across the region.
While GCC countries were part of a universal 10 per cent baseline tariff that Mr Trump announced on Wednesday, they avoided the much harsher reciprocal levies that he imposed on what White House officials had called the 'worst offenders'.
More than a dozen countries were hit with reciprocal tariffs including China (34%) and the UK (10%). The EU was hit with a 20 per cent tariff. No Gulf country was on the list, and Israel (17%) was the only country in the Middle East to be hit.
Reciprocal tariffs are due to go into effect on April 9.
'Given the global nature, the GCC probably got the best outcome they could've got,' said Rachel Ziemba, founder of Ziemba Insights.
Mr Trump blamed part of the tariff debate on the US trade deficit, which was $1.2 trillion at the end of 2024. But the US had a trade surplus with the GCC last year. GCC members also have a relatively low tariff of 5 per cent on most goods, and their currency pegs to the US dollar helped to avoid criticism of manipulation.
'It's not a good outcome that universal tariffs are now part of how the US is financing itself, but [Gulf] leaders may take it as a partial success that they ended up in this lowest tier of most friendly countries in this new rubric,' Ms Ziemba said.
And given the relatively low bilateral trade between the US and GCC members, the baseline 10 per cent tariffs will probably have a muted effect.
Far more important to the GCC, Ms Ziemba said, are the indirect effects of reciprocal tariffs on the US economy and global trade flows.
Tariffs are largely considered to have some inflationary affect while dampening growth. Latest forecasts from the US Federal Reserve showed it anticipates the largest economy in the world to grow by only 1.7 per cent this year.
'That's not a good thing for the countries in the region through the energy markets,' Ms Ziemba said.
Dow Jones Industrial Average futures were also down 751 points, or 1.8 per cent. S&P 500 futures and Nasdaq-100 futures dipped 3 per cent and 3.8 per cent, respectively.
And unlike in Mr Trump's first term, the latest set of tariffs come as inflation remains above the Fed's 2 per cent target. Fed officials are preparing to keep US interest rates elevated in the near term, which will keep borrowing costs higher in the Gulf due to the currency peg.
Projections from the Organisation for Economic Co-operation and Development last month also anticipated Mr Trump's tariffs would lead to lower growth, decreasing its global growth forecast from 3.2 per cent in 2025 to 3.1 per cent, and 3.0 per cent in 2026.
'The much bigger and more significant impact, which is negative, is the impact this trade war will have on the strength of the global economy, and hence on oil and gas demand. And it's got to be negative,' said Justin Alexander, director of Khalij Economics.
Brent futures were down 1.75 per cent at $73.19 per barrel after Mr Trump's announcement.
'The big concern is the indirect impact in terms of how global trade flows change, how that impacts global growth,' Mr Alexander said.
He said GCC countries are becoming well positioned as an open economy amid a more protectionist world, which makes them more attractive for investments.
'Broadly speaking, the Gulf is in a pretty good position compared to many other countries,' Mr Alexander said.

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