US Tariffs Unlikely to Impact GCC Economies

The Trump administration is unlikely to impose direct tariffs on MENA countries due to economic and strategic considerations, according to the latest report from the Fitch Research Solutions unit BMI.

The report said that the US runs trade surpluses or small deficits with most MENA countries, except for Iraq and Israel, whose trade deficits with the US are still small compared to those with Mainland China, the Eurozone, Mexico, and Canada.

As a strategic partner, the likelihood of US-imposed tariffs is virtually zero while the US imports from Iraq are mostly oil-related, making tariffs ineffective. However, political pressure might involve sanctions on Iraqi oil exports, with other MENA countries able to fill any gaps, the report said.

Furthermore, the investments from the UAE and Saudi Arabia in the US, particularly in artificial intelligence (AI) and oil and gas sectors besides the relationship between these two economic power houses with the US President Donald Trump reduces the US incentive to impose direct tariffs.

“Third, imposing tariffs would counter Trump’s efforts to expand the Abraham Accords and reduce China’s influence in the Middle East. The US President is also aiming to bring Saudi Arabia back in the US fold and imposing tariffs on GCC oil exports could drive the GCC closer to China, which is counterproductive,” the report explained.

The report also said that in the event that the US imposes tariffs on strategic imports, BMI estimates that the impact on MENA countries will be limited/manageable.

For instance, a 25% tariffs on US aluminium imports will come into effect on 22 March 2025 and the UAE and Bahrain are among the top 10 aluminium exporters to the US, with exports valued around $200 million and $670 million respectively in 2023. Qatar and Oman also feature among the top 10 aluminium exporters to the US totalling $300 million and $270 million respectively.

Tariff on Aluminium

A proposed 25% tariff on aluminum could raise Bahrain’s tariff rate by 13.6pp, the UAE by 6.0pp, and Qatar and Oman by 4pp, due to export concentration to the US.

While discussions continue around 25% tariffs on strategic goods, a compromise rate of 10%-15% might be more likely. This adjustment reflects the difficulty and cost for the US to rapidly increase domestic production or find alternatives to meet immediate demand.

BMI expects a limited impact of higher aluminum tariffs on MENA economies. Even for Bahrain, whose exports to the US are 5.5% of its total exports and 1.5% of GDP, the impact will be manageable.

“This is because the global aluminum demand is expected to remain strong, offsetting weaker US demand, facilitating export redirection to other markets and possibly enticing the US to reach a deal with Bahrain and the UAE,” the report said.

Potential tariffs on other critical goods like pharmaceuticals, electronic components, and semiconductors will also have limited impact on MENA countries.

While Israel is the most exposed country, with its exports of semiconductors, electronic integrated circuits, and medicaments to the US comprising 5.5% of its total exports, this only represents approximately 0.6% of its GDP, the report said.