The GCC braces for full impact of China-US trade war
The US accuses China of intellectual copyright theft and began a trade war when it imposed 25% tariffs on $34 billion (bn) of Chinese goods, then China retaliated with a tit for tat, action in kind.
Threats have escalated since then with the US saying it is ready to slap tariffs on all $500bn of Chinese imports in the US.
Today, the US is considering 25% tariffs on $200bn worth of Chinese goods, much higher than the 10% it previously indicated it might impose, BBC reported.
The list named more than 6,000 items including food products, steel and aluminum, minerals and consumer goods such as handbags, dog food, furniture and carpets to car tires, bicycles, baseball gloves and beauty products.
The GCC, an innocent bystander, will eventually feel the weight of these tariffs.
Trade with China
China was the single greatest source of imports in the UAE in 2016, with imports totaling $25bn, according to OEC, the Observatory of Economic Complexity, a tool that allows users to quickly compose a visual narrative about countries and the products they exchange.
According to data from the European Union (EU), Chinese imports to the GCC totaled $47.7bn in 2017, representing 11.4% of imports in the region. China was the country with the most imports to the Gulf.
The GCC’s total trade with China was close to $110bn last year, with the largest export from the region being crude oil, and accounts for more than two thirds of China’s trade with the Middle East, according to Nasser Saidi, former chief economist of DIFC, former Lebanese economy minister, who was quoted by gulf daily The National.
With such figures, it’s only logical that Trump’s new tariffs will have drastic repercussions on GCC markets.
Starting with oil prices
Oil prices fell early on Wednesday and Thursday. October Brent crude futures dropped 29 cents, or 0.4% to $73.92 a barrel, adding to a 1.85 loss in the previous session.
US crude futures were down 44 cents Wednesday, or 0.6%, at $68.32 a barrel, having dropped nearly 2% on Tuesday.
Today, Brent is trading ata lower $72.49 and WTI at $67.83.
Oil Price.com, an industry site, reports that China said on Wednesday that it would respond with quick retaliation if the U.S. moves forward with higher tariffs.
“If someone wants a trade war,” China’s commerce minister Zhong Shan has said, “we will fight to the end.”
“As the trade war escalates, there is a good chance that China retaliates by slapping a tariff on U.S. crude oil imports, making 3% of Chinese imports,” Oil Price.com said.
“More broadly, however, the effect of tariffs on consumer demand could be significant. Moving forward with tariffs on $200 billion of Chinese imports would mean higher prices for a long list of consumer goods, acting as a drag on household income. Ultimately, that could begin to cut into gasoline consumption. According to the EIA, gasoline demand dipped by 40,000 bpd in May, year-on-year. Industrial activity would also slow down, further cutting into demand.”
According to the Petersen Institute of International Economics, more than 90% of the products on the US tariffs list are made up of intermediate inputs or capital equipment. That means stuff that you need as raw material to make other products – so it could have a knock-on effect on many other goods too.
CNBC reported investors fear that an escalating trade war between Washington and Beijing could hit global growth.
The Financial Times estimates that should countries retaliate, the value of trade covered by the measures and countermeasures could reach more than $1 trillion (some 6% of world trade), which would derail global growth.
What does all this mean for the GCC?
The GCC exported $9.4bn of aluminum in 2017, (of which the UAE provided $5.6bn worth, representing 10% of world exports, and is the largest exporter to the US after Canada and Russia, according to Saidi.
“Already adversely affected by aluminum tariffs, the region would be additionally hurt by a decline in world trade and world growth which would lower oil prices, and particularly if China were hard-hit,” said Saidi.
“The time is right for the GCC to reorient their international trade agreements and pivot towards Asia, including the long-delayed Free Trade Agreement with China.”