As the world continues to weigh the impacts of US President Donald Trumps’ sweeping new tariffs on the global economy, we take a look at the expected impact on the GCC, and the UAE in particular, given the 10% tariff imposed on exports to the US.

In case you’ve been living under a rock and somehow missed the news, Trump yesterday announced plans to slap a universal 10% tariff on all US imports, as well as higher reciprocal tariffs on other trading partners, as he vowed to “liberate” the US from what he claimed were unfair trade barriers against the US. GCC countries like the UAE, Saudi Arabia, and Oman were slapped with the 10% tariff.

In the grand scheme of things, the GCC actually got off easy. “The higher tariffs applied to other countries will give Gulf states a relative competitive advantage,” GCC Economist and Khalij Economics Director Justin Alexander told EnterpriseAM UAE. The UAE and other GCC countries are among a lucky few getting the more minor 10% tariff — with others like China, Vietnam, Cambodia, and Taiwan receiving tariffs of up to 54%. “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,” Rachel Ziemba, founder of advisory firm Ziemba Insights, told the National.

On the downside, the fact that the GCC is only getting off with a 10% tariff means there is likely “little scope for individual negotiation,” Alexander said.

Most economists, including Alexander, agree that impact on the UAE’s trade will be limited, since the US is a smaller market for exports. But according to Alexander, a “recalibration of global trade flows” is expected, which will have an impact on companies like DP World — while “the UAE’s role as a bastion of freetrade will add to its appeal as an investment destination in an uncertain world.”

By the numbers: The US had a trade surplus with the UAE as of last year, with the Office of the US Trade Representative reporting a surplus of USD 19.5 bn. US exports to the Emirates amounted to USD 27 bn, while UAE exports to America came in at USD 7.5 bn. The biggest export market is precious stones and jewelry, followed by aluminium.

Why exporters shouldn’t be worried: Aluminum and steel exporters are already subject to a separate 25% tariff and will not be impacted by the new tariff policy, with an Emsteel representative telling the National it sees a limited impact considering the US accounts for a limited portion of overall sales. Meanwhile, the “high-profit margins associated with precious stones and jewellery, and the UAE's status as a low-cost producer of aluminium” will shield those industries from significant impacts, chief economist at Commercial Bank of Dubai Deepak Mehra told the National.

But there will be an economic impact

From an economic perspective, lower oil prices and higher US interest rates could have a negative impact on GCC economies, Alexander said. Oil prices already fell yesterday, with Brent crude dropping to USD 70, although that was likely on news of Opec+ speeding up production hikes (read: What We’re Tracking today, above), and fell USD 2 following news of the tariffs. “The ultimate impact on the oil market could be materially negative if there is a significant downturn in global trade,” Alexander wrote in a note.

The tariffs are also expected to drive up inflation, leading to higher-for-longer interest rates in the US and the rest of the GCC.

The impact on the USD, which could in the long term, be negative due to fading trust in the US economy, will also have an impact on the GCC, which pegs its currencies to the greenback. "It's not clear what USD value is optimal for the GCC, which benefits from a strong dollar in terms of the cost of its imports and expat salaries, but suffers from its impact on the competitiveness of non-oil exports,” Alexander added. The USD fell to a fresh six-month low yesterday following news of the tariffs.

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