A US $500bn tariff war on China spells inflation for the GCC
New tariffs on Chinese imports into the US proposed by the Trump administration could have disastrous effects that spread far and wide beyond the scope of US-China relations.
The GCC will surely suffer from the fallout.
‘Made in China’? Prepare to get taxed
President Trump threatened to assess further tariffs against Chinese goods to cover $500 billion of imports on Friday, Reuters reports.
This news comes after the US imposed tariffs on $34 billion of Chinese exports and considered pushing even further with another $200 billion to $400 billion in tariffs depending on retaliation from China, Business Insider reports.
“This is just short of the $505 billion total amount of Chinese goods that came into the US in 2017, making the new threat almost equivalent to taxing all Chinese imports into the US,” they continued.
Around $505 billion of Chinese goods were imported to the U.S. in 2017, leading to a trade deficit of nearly $376 billion, U.S. government data shows. Chinese imports from the U.S. totaled $205 billion in the first five months of 2018, with the deficit reaching $152 billion, Reuters reports.
Trump does not realize the ramifications of this trade war he is waging.
“The escalating trade war, if it goes badly, could be a risk for the U.S. economy,” James Bullard, CEO of the St. Louis Federal Reserve Bank, said, adding he understands the policy’s objective. “But it could be that all we end up with is a lot of tariffs globally and a lot of other types of protectionism globally,”
China is quick to retaliate in such matters. When the US imposed tariffs on $34 billion of Chinese exports earlier this month, the Asian nation was quick to retaliate with levied taxes on the same value of U.S. products.
While these two international giants duke it out, regions like the GCC stand to lose big time.
GCC products to rise in price?
China remains a dominant exporter to the GCC. In the infographic above, China was the single greatest source of imports in the UAE in 2016, with imports totaling $25 billion, according to OEC.
According to data from the European Union (EU), Chinese imports to the GCC totaled $47.7 billion in 2017, representing 11.4% of imports in the region. China was the country with the most imports to the Gulf.
With such figures, it’s only logical that Trump’s new tariffs will have drastic repercussions on GCC markets. With a majority of goods in the region coming from the Asian superpower, any inflation of Chinese products will be felt in earnest in the Gulf.
A US-China trade war is bad for everyone
China provides the essential components required to create many of the world’s most famous products. For example, while the iPhone is seen as a luxurious product of American origin, many of its components are still made in China, a manufacturer not often associated with high-quality goods. The inflation of Chinese products that could result because of these new American tariffs would lead to a similar rise in the price of the iPhone.
Now, imagine that exact same chain reaction reverberating across all fields of industry. This snowball effect would duplicate across a myriad of sectors which would, in turn, lead to the inflation of Chinese products entering the GCC, potentially raising the cost of living in the region. Chinese influence ranges from electronics to real estate, to transport, therefore it is not a major leap of faith to predict such a negative turn of events.
State-owned China State Construction and Engineering Corporation’s Middle East (CSCEC ME) subsidiary is one of the UAE’s best-known contractors. An increase in the price of Chinese components would have a hindering effect on the growing real estate industry in the UAE.
China will provide Arab states with $20 billion in loans for economic development, President Xi Jinping told top Arab officials recently, as Beijing seeks to build its influence in the Middle East and Africa. This loan’s fate is now up in the air, as the escalation of the US-China trade war could make China reconsider their investment.
Furthermore, China’s plans for the Middle East following the announcement of their Belt and Road initiative might need to be reconsidered while the country goes back to the drawing board in light of an escalating China-US trade war.
The Asian nation’s “Made in China 2025″ plan to revolutionize their technology industry has caused concern and fear among American industry figures. If China’s plan succeeds, they could stand to rival, if not outperform, the US’s technology sector. Trump’s latest talk of tariffs is a conscious response to this threat.
These new import taxes could lead to a chain reaction with other countries in the global market following suit. As Bullard mentioned earlier, this protectionism could prove infectious, as Trump rallies his allies to further put pressure on China.
Price inflation is the last thing GCC citizens need. With the implementation of domestic taxes such as VAT in countries like Saudi Arabia and the UAE, external inflation would only cause decreased consumer spending, as well as economic difficulties.
All in all, Trump’s new tariffs could spell a bad time for everyone involved, and that ‘everyone’ happens to be the entire world in this case.