US President Donald Trump’s tariff announcement earlier this month sparked chaos in the global markets. Countries in the Gulf Cooperation Council (GCC) were hit with a tariff of 10%, a relatively low rate that still caused a decline in Gulf stocks until President Trump announced the suspension of tariffs for 90 days.
As Gulf leaders spend the 90-day period negotiating better terms with the US, some analysts predict that the new era of global tariffs could be a boon for the GCC, drawing other countries to move their manufacturing bases to Gulf countries with relatively low tariffs. But others warn that global tariffs are driving down oil prices, fueling uncertainty, and strengthening the US dollar—all factors that could hurt Gulf economies.
The countries of the Gulf Cooperation Council engage in significant trade with the US. The United Arab Emirate is the United States’ largest trading partner in the Middle East and North Africa region, with a total trade volume of $34.4 billion in 2024. Saudi Arabia is second with a total trade volume of $25.9 billion this year, while Qatar’s trade volume reached $5.6 billion, Kuwait's $4.1 billion, Oman's $3.3 billion, and Bahrain's $2.9 billion.
After the tariffs were announced, more than 50 countries expressed interest in negotiating the terms. Oman and Bahrain, which both have free trade agreements with the US, are particularly interested in negotiating.
Bahrain is also bound by the Comprehensive Security and Prosperity Agreement with the United States, which the UK intends to join soon. Signed in December 2023, the agreement covers several security and economic aspects, giving Bahrain a competitive advantage in these areas.
“The Gulf states are negotiating with the United States to reduce or completely eliminate these tariffs, taking advantage of other incentives such as the large Gulf investments announced by Saudi Arabia and the UAE in the US,” an informed Gulf source told The Media Line. “Therefore, it is likely that these tariffs will be lifted for the Gulf states.”
Abdullah Al-Baqal, a Saudi economic data analyst, similarly predicted that tariffs for Gulf states would end up no higher than 5%. “There will be a round of negotiations, and I am certain that they are currently underway,” he told The Media Line. “The Gulf countries will not impose tariffs on their imports from the United States, except for the 5% tariff imposed on all countries worldwide. However, more exemptions may be granted for American goods.”
Shares of Gulf aluminum companies remain low following Trump’s decision to impose a 25% tariff on all aluminum imports. Aluminum companies in the Gulf produce approximately 10% of global aluminum production, which amounts to around 64 million tons annually.
Gulf countries export 60% of their aluminum production to international markets, including the US market, which accounts for only 10% of Gulf production.
The US market requires approximately 4 million tons of raw aluminum annually due to its lack of self-sufficiency. The United States will need approximately four years from the implementation of President Trump’s tariff decisions to achieve aluminum self-sufficiency.
While the total tariffs on Gulf aluminum amount to 25%, these tariffs will not significantly affect US imports of aluminum from GCC countries. GCC exports to the US remain more competitive than those of Canada, India, and Australia.
Taking advantage of low tariffs
After the implementation of these tariffs, many economic analysts believe there is a significant opportunity for the Gulf countries to become a hub for industries exported to the United States, taking advantage of the relatively low 10% tariff. Companies subject to heavy tariffs, such as those in East Asia, can establish manufacturing facilities in the Gulf.
“Gulf countries can take advantage of the lower tariffs to become a base for industries exported to the United States,” Chairman of the Bahrain Chamber of Commerce and Industry Sameer Nass recently told reporters.
He said that he expects commodity prices to decline. “Goods that will not be exported to the United States will seek other markets, and the Gulf countries will certainly be one of these markets,” he explained. “Consumers may get better products at lower prices.”
But the challenge of higher costs compared to countries in Asia remains a factor for consideration. The minimum wage in the Gulf countries is $300 per month, in addition to other fees imposed for obtaining work permits and medical insurance. This raises the cost of a single worker to more than $400 per month. Meanwhile, labor costs in countries like India, Bangladesh, and others are much lower.
“Energy is cheap here, but other costs remain, such as employee salaries and other things, and they could make this task difficult,” Al-Baqal said of moving manufacturing to Gulf countries.
He said that factories in other Middle Eastern countries might benefit, as might countries like China and India that have been subjected to very high tariffs. “As for the rest of the countries, there is a significant difference in manufacturing costs, which benefits these countries, not the Gulf countries,” he said.
US tariffs have also led to a decline in oil prices, putting pressure on the budgets of Gulf countries, which rely heavily on oil revenue for government spending. OPEC+ countries are responding by cutting production to try to return prices to a range of $70-$80 per barrel. These figures are still lower than the break-even price for countries like Saudi Arabia, Kuwait, and Bahrain, which need higher figures to avoid government budget deficits.
The US tariff announcement is expected to lead to global stagflation, which is set to exacerbate the global supply chain crisis. Many consumer products are no longer produced in a single country, and countries have begun imposing tariffs and countertariffs, raising the prices of these goods for the final consumer. For example, goods that contain both Chinese and American components are now priced 68% higher than they were before these tariffs.
Given the increased volume of Gulf imports, this situation increases inflation rates due to higher consumer prices, higher living expenses, and increased government procurement costs, which in turn increase public budget spending.
Opportunity to benefit from shifts in global trade
However, there is a significant opportunity for Gulf countries to benefit from shifts in global trade. Many countries are now facing high tariffs in the US market, to the point that this market has become virtually closed to their products due to high prices, particularly for consumer goods. Those countries may be looking for alternative markets, and the Gulf market emerges as a promising destination, especially given its significant activity in re-exporting to third countries. The Gulf free trade zones, most notably the Jebel Ali Free Zone in the United Arab Emirates, are among the most prominent drivers of re-exporting.
Countering these opportunities are the challenges of dumping in the Gulf market due to trade shifts, threatening Gulf industries in their own market. To this end, the National Committee for the Iron Industry in Saudi Arabia has called for protective measures for the Gulf industry, including increased customs duties, in anticipation of global companies seeking alternative markets.
Kuwaiti economic analyst Abdullah Al-Amir warned of the tariffs’ indirect effects on Gulf economies. “All goods will rise, and Gulf currencies are pegged to the dollar. They will be unable to bear the increased costs of these goods,” he told The Media Line. “Oil prices have also fallen to an unbearable level.”
Noura Al-Faihani, a Bahraini economic analyst, similarly cautioned that the tariffs would have disastrous consequences for the global economy. “Market stability will require a long period of recovery that cannot be determined today, given the reactions of countries to these tariffs,” she told The Media Line.
She noted that Bahrain’s stock market was the least affected out of the GCC markets due to its stability and size.
“The Gulf countries will certainly be affected, perhaps not through direct exports to the United States, but there is a decline in oil prices. Furthermore, the currencies of five out of six Gulf countries are pegged to the dollar, which may be subject to a decline, affecting the prices of consumer goods in the Gulf,” she said.
Some repercussions from the tariffs are already obvious, and others will become clear only after the 90-day freeze ends, she said.
