Impact of Trump's tariffs on UAE will be 'multifaceted' but 'minimal', say experts
The imposition of a 10 per cent tariff on UAE by US president Donald Trump will have a multifaceted but minimal impact on the country's economy, according to experts. However, some noted that consumers will bear the brunt of the situation.
On Wednesday, Trump announced 10 per cent baseline tariff on all imports to the US and higher duties on several countries. This includes duties on GCC countries, with 10 per cent on the UAE and Saudi Arabia, and 20 per cent on Jordan.
According to Hamza Dweik, Head of Trading and Pricing of Saxo Bank MENA, the move will have a 'multifaceted' impact on the economies of GCC countries. 'From an economic standpoint, we anticipate that the tariffs will increase export costs for GCC businesses, potentially hindering their competitiveness in the American market,' he said.
'This could lead to a decline in both export volumes and revenues for businesses reliant on US markets. Particularly vulnerable are sectors that have not yet fully diversified and depend heavily on American demand.'
Meanwhile, Vijay Valecha, chief investment officer at Century Financial, pointed out that the impact would be minimal and provide opportunities. 'Given the relatively low volume of bilateral trade between the US and GCC members, the baseline tariffs are unlikely to have a significant economic impact on these countries,' he said.
He added that the most direct impact would be felt by the aluminum industry, as GCC nations account for 16 per cent of America's aluminum imports. 'Bahrain, Oman, Qatar, and Saudi Arabia are the primary suppliers of aluminum to the US, with the UAE ranking as the second largest supplier after Canada,' he said.
'However, these countries enjoy a competitive edge, given the low energy costs in the region. Moreover, any aluminum not purchased by America can be redirected towards local construction projects and domestic electric vehicle manufacturers, thereby bolstering the region's efforts in economic diversification.'
Market reaction
Trump's tougher-than-expected tariffs are expected to stoke a trade war with many countries threatening to impose retaliatory measures. US stocks nosedived on Thursday while the dollar slumped, as investors worried about an upcoming recession.
Brent crude, the global oil benchmark, was down seven per cent at $69.71 a barrel. The Dow Jones Industrial Average tumbled 1,400 points, or 3.3 per cent, while the Nasdaq Composite fell five per cent. Shares of multinational companies including Nike and Apple also fell.
'Trump's aggressive tariff rollout, arguably worse than feared, adds more uncertainty to global markets, with stock futures deep in the red,' said Josh Gilbert, Market Analyst at eToro. 'The worry now is the slowdown in global growth, lingering inflation risks, and escalating trade tensions. Trump is looking to strong-arm nations, but he might be met with retaliation. The best investors can hope for is that countries play ball, and this doesn't spiral into a full-blown trade war."
"There will be a big focus on earnings guidance and central bank responses. If it wasn't already clear, today's sharp sell-off in risk assets and the rush to safe havens show investors should prepare for ongoing volatility in the months ahead.'
Meanwhile, international companies are taking stock of how to proceed. In a statement to Khaleej Times, multinational logistics brand DHL said they remained bullish but were studying the situation. 'We need to monitor whether the situation leads to a broader distancing of the US from the rest of the world and assess the potential long-term effects on global trade,' said a spokesperson.
'We see growth opportunities in many markets around the world and also in sector verticals such as e-commerce, life sciences and healthcare and new energy, where we continue to make investments.'
Consumers to bear the brunt
Some analysts noted that consumers will be the ultimate losers in this war.
'We would say that the announcement has brought a lot of pessimism for the global markets in the short term and any optimism about long-term goals should be treated very carefully,' said Nayeem Aslam, Chief Investment Officer at Zaye Capital. 'One thing is for certain and that is consumers are going to pay higher cost and they will be the one who will be feeling the most of the pain.'
Gold prices hit an all-time high and several consumer products are expected to get more expensive in the aftermath of these tariffs. Other experts noted that the move could have a 'ripple effect' on UAE markets.
'The tariffs are likely to increase risks for UAE exporters, straining trade balance and businesses,' said Joseph Dahrieh, managing principal at forex company Tickmill. 'Additionally, a global growth slowdown and oil price volatility pose some risks. Overall, the tariffs introduce some uncertainty, although the impact can be limited thanks to the strong local fundamentals.'
Dilin Wu, a research strategist at Pepperstone, said that the impact of escalating global trade tensions on the UAE boils down to two key factors — oil demand and investment flows.
'As one of the Middle East's top oil exporters, the UAE is deeply tied to global energy demand,' she said. 'If a trade war introduced by US tariffs slows the global economy and weakens manufacturing activity, major economies may cut back on energy consumption. This could put downward pressure on oil prices, directly hitting the UAE's export revenues."
"At the same time, the UAE has built its economic strength on free trade zones and its role as a logistics hub. But if tariffs push multinational corporations to restructure their supply chains or relocate production elsewhere to avoid added costs, the UAE risks losing a key part of its trade and investment flow. This could erode its position as a global trade gateway, impacting capital inflows and economic growth," added Wu.
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