Middle East businesses get ready for impact of US tariffs

Businesses in the Middle East are getting ready for higher costs and price hikes despite analysts predictions that they will experience smaller direct impacts in response to America’s reciprocal tariffs, The National reported on April 3rd.

The rate of tariffs imposed on the region fluctuates to a large degree. Syria and Iraq will be the worst hit, receiving tariffs of 41% and 39%, respectively, while Egypt, Morocco, Lebanon, Iran and Sudan were handed the lowest tariff rate of 10%.

The tariff rate imposed is calculated using a basic formula which is a country’s trade surplus with the US, divided by its total goods exports to the US, according to the Middle East Eye on April 3rd.

Countries with a high “tariffs charged” rate receive a US reciprocal tariff where its total amount is divided by two.

Algeria, Israel, Jordan, Libya and Tunisia were classified as countries with high tariffs charged, so they received tariffs of 30%, 17%, 20%, 31% and 28%.

MENA-based companies are formulating plans to alleviate expected fallout. They are making adjustments to minimise disruptions to global trade while seeking clarity on how their operations will be impacted by these levies.

DP World, the global ports operator based in Dubai, said that businesses will need to adapt significantly in response to the tariffs.

The operator said: “With tariffs increasingly shaping policy, we recognise that businesses are facing significant adjustments . . . As supply chains realign, new manufacturing and trading hubs may emerge in response to shifting cost structures and market access considerations.”

The White House declared reciprocal tariffs to the UAE and Saudia Arabia of 10%, explaining that the two countries imposed a similar figure on the US.

The trading surplus with the UAE was $19.5 billion, according to the Office of the US Trade Representative last year.

US exports to the Emirates were valued at $27 billion, while the UAE exported $7.5 million worth of goods to the US. Exports from the UAE are mainly precious stones and jewellery, and then aluminium.

“Given the high-profit margins associated with precious stones and jewellery, and the UAE’s status as a low-cost producer of aluminium, the impact on UAE businesses is expected to be minimal,” Deepak Mehra, chief economist at Commercial Bank of Dubai, said to The National.

Despite the chance of the UAE’s economy facing “more pronounced effects” in the case of oil prices dropping as a result of a global trade war, the countries will reap the rewards of one of the lowest break-even oil prices in the Gulf, giving it a “fiscal cushion” in the event of extended price weakness, Mehra said.

UAE companies could profit from the escalating trade tension between the US and China, analysts have said.

“With a total of 54% tariffs on Chinese goods, Chinese manufacturers may face excess capacity, leading them to offer products to the global market at reduced prices,” Mehra added.

Mehra also said: “This scenario would allow UAE-based businesses to source final products, raw materials and equipment from China at lower costs, enhancing their competitiveness by passing on better prices to their clients.”

The Gulf countries facing a 10% tariff may expand their exports to the US in proportional terms, as the tariffs given to Gulf exporters are significantly smaller than those granted to many key economies that rival them in the US market.

“There may be opportunities in sectors where Gulf companies have US competitors in markets that respond by hiking tariffs on the US. I don’t think there is much incentive for Gulf companies to invest in the US in order to ‘avoid’ the 10 per cent tariff rate, but the GCC’s appeal as an investment destination should increase even more, as one of the remaining bastions of free trade,” said Justin Alexander, director of Khalij Economics.

The National, Middle East Eye