Dubai: The US and China may have reached a tariff truce, but the global trading system is not returning to business as usual. A deeper shift is underway with governments and firms rethinking supply chains in light of geopolitical tensions, industrial policy, and lessons from recent disruptions. The world is moving from decades of broadly expanding trade liberalization toward a more fragmented and competitive environment.

So, what does this mean for countries in the Gulf Cooperation Council (GCC)?

On the risk side, greater fragmentation could dampen global growth and energy demand. If major economies prioritize producing more at home or trading within regional blocs, the result could be slower flows of goods and services worldwide. This would weigh on GCC energy exports, with lower revenues affecting budgets and investment plans. Service sectors such as logistics, aviation, and tourism, which rely on high volumes of international movement, could also feel the impact.

At the same time, fragmentation is reshaping the Gulf’s traditional role. For decades, the region has been recognized as a hub linking East and West, valued for its infrastructure and connectivity. What is new today is the premium placed on neutrality and diversification. Instead of firms simply reorganizing supply chains only for efficiency, navigating geopolitical risks is becoming increasingly important. The Gulf’s ability to engage with multiple partners, hosting both US and Chinese investment, for example, makes it increasingly attractive as a more balanced platform for investment.

Industrial policies in the US, Europe, and Asia are also accelerating a search for alternative production bases. Apart from facilitating trade, this is opening space for GCC to anchor parts of global value chains in areas such as aluminum, petrochemicals, and potentially green hydrogen. If successful, this would give the region a more durable stake in global production, rather than relying primarily on re-exports.

Tech complexity

Technology adds another layer of complexity. The US, Europe, and China are developing competing digital ecosystems in fields like artificial intelligence, cloud computing, and 5G. For Saudi Arabia and the UAE, which are investing heavily in AI, renewables, and digital infrastructure, the challenge will be to maintain access to multiple technology partners without being drawn into exclusive blocs. Navigating this terrain will be critical to sustaining diversification strategies.

The global trade environment may continue to move away from the highly open, rules-based system that prevailed until recently. Even as tariff talks ease tensions, countries and firms are placing greater emphasis on resilience, risk management, and strategic diversification.

Recent disruptions, including a series of steep tariff hikes, energy and commodity volatility, and supply chain bottlenecks, have highlighted the risks of relying too heavily on a single partner or region. But this does not necessarily mean decline for the Gulf. The region’s strategic location, investment in connectivity, and ambitions to build new industries could allow it to adapt and even thrive. The task ahead is to move from being a connector of flows to an active participant in shaping them, turning fragmentation into an opportunity for long-term resilience.

J. Bradford Jensen

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