6 days ago
End of free trade era? Tariff war could stall growth for 3 years, CFO warns
Free trade, as the world has known it, is over at least for the next three years, according to a global shipping company head. Ali Abouda, Group Chief Financial Officer (CFO) at Gulf Navigation Holding PJSC, also observed that the world is now in an "active trade war" and finance professionals must resort to frequent forecasting and scenario planning to navigate the uncertain times.
"Budgeting has probably become a redundant exercise," said Abouda. "We are going through a very, very unpredictable time in terms of business environment. If there's no stability where you operate, then everything becomes quite difficult and challenging. Budgeting should be replaced by scenario forecast and I think a very frequent forecast should be the name of the game."
Ali was in conversation with Khaleej Times Chief Content Officer Ted Kemp about the impact of US tariffs on finance professionals at the sixth edition of the New Age Finance and Accounting (NAFA) summit organized by Khaleej Times. The event saw CFOs, finance leaders, policymakers, and fintech innovators engage in dialogue on various topics including taxes, ESG, and reskilling the workforce.
How does Section 301 impact trade?
One of the topics of discussion during the conversation was Section 301. Kemp questioned how the section of the Trade Act of 1974, which targets Chinese ships, would impact trade.
Abouda explained that 90 per cent of global trade was accounted for by shipping - a field dominated by China. "The US took a decision to keep the brain in the US and move the muscles elsewhere. Section 301 targets Chinese-built, owned, or operated vessels calling at US ports, imposing penalties of $500,000 to $1 million per call in addition to the tariffs.
"The resolution is expected to be effective October 4, and if this goes through, I think there will be a structural change in the whole supply chain. China, in one way or another, control about 60 percent of the shipping, either through building or through financing or operating or resources," he said.
Unclear directives from US
Abouda added that while the Trump administration was agile in decision-making, it lacked clarity. "If the US wants to build more ships, that's all good, except that it isn't something that's going to happen quickly," he said. "I don't know what's the thought process behind it."
He gave the example of how US President Donald Trump encouraged more American companies to drill oil, with his 'drill, baby, drill' slogan. "That's practically not possible, because the US doesn't have the capacity today to start increasing production by 3 or 4 million barrels immediately," he said.
"That needs a lot of regulations to be in place and a lot of investments, which the US is not ready for. If I was one of the leaders of those companies, I would think twice. If you go with the mandates of an administration that has three years left, maybe the next administration will have a totally different view," Abouda added.
He said that Trump's constant shift in tariff policies was also damaging to the industry. "The most recent example is, he imposed a 50 percent tariff on Europe and two days later, it was pushed to July 9," he said. "So, he's creating an environment which is very difficult to do business in."
