In 2 months, global trade will reset towards higher import tariffs

Global trade relations will experience significant shifts during the second term of President-elect Donald Trump, who has already announced plans to impose substantial tariffs on imports from China and the EU, reaching up to 60% on Chinese goods and 10-20% on European ones.

This means a potential overhaul of the existing framework established by the World Trade Organization (WTO), which has to date focused on liberalizing trade in goods and services. This system enabled many nations, including developing countries, to enhance their exports, particularly of agricultural products, thus improving their economic conditions and creating job opportunities.

The incoming US administration's approach, to take effect in two months, threatens to undermine three decades of WTO efforts. Countries will be forced to reassess their trade strategies in light of these protectionist policies.

In response, major economies like China and Russia are expected to implement countermeasures, which could exacerbate tensions in global trade.

Meanwhile, the EU and other affected nations may seek to negotiate compromises, although achieving this is likely to prove challenging in this new, highly polarized trade environment.

China and the EU are among Washington's largest trading partners and key markets for American products. The proposed tariff measures are likely to significantly curtail their exports to the US, potentially triggering repercussions for their industrial sectors and overall economic growth.

Sharp economic deceleration

The Bank of America, for example, warned that Trump's trade policy threatens commodity prices. The President of the German Central Bank has warned that Germany could face a 1% reduction in GDP, with exports to the US projected to decline by 15%.

Such a scenario could lead to an economic contraction for Germany, which has already borne the brunt of the Western boycott of Russia. The boycott has resulted in reduced growth, bankruptcy for hundreds of companies, and unprecedented inflation, largely driven by soaring energy costs.

China, while preparing countermeasures, is also expected to seek alternative markets for its competitively priced exports. These alternatives may include Russia, East European nations like Hungary and Serbia, Turkey as well as countries across Asia, Africa, and Latin America.

Despite such efforts, losing access to the US market—one of its primary trade destinations—will have a noticeable impact on China's economy.

The ripple effects of these anticipated US policies will extend globally, affecting countries to varying degrees, including the Arab world and GCC states. For the GCC, it is essential to assess the potential impact on their trade, particularly exports, and devise strategies to mitigate the adverse effects.

Make better use of US FTAs

For instance, Bahrain and Oman have FTAs (free trade agreements) with the US, exempting their exports from customs duties. Despite these agreements being in place for two decades with Bahrain and 15 years with Oman, the economic benefits have been modest.

To capitalize on these agreements, Gulf states could initiate joint ventures in Bahrain and Oman. By ensuring that these companies are at least 51% locally owned, their products would qualify as having national origin status, allowing duty-free access to the US market now and in the future.

On the American side, while the proposed measures are expected to boost the industrial sector, create jobs, and increase growth rates, they may also have unintended consequences. The absence of affordable, high-quality Chinese products could lead to higher prices for consumers, potentially fueling inflation.

The global economy is thus on the brink of a new era in trade relations. The shift is likely to yield benefits for some nations while imposing significant losses on others.

It signals a departure from decades of trade liberalization, marking a return to protectionist policies that will have far-reaching economic consequences.