With the intensification of the trade war between the United States and China, U.S. tariffs on Chinese goods reached up to 145%. In response, China increased its counter-tariffs to 125%. Just recently, the U.S. granted tariff exemptions on some Chinese digital products, but tensions between the two countries continue to persist.
In this round of tariff confrontation between the U.S. and China, both sides will go through multiple rounds of competition, and a temporary easing of tensions cannot be ruled out. However, related studies and commentaries point out that, rather than focusing on short-term goals like reversing the trade deficit or increasing fiscal revenue, the key objective of the Trump administration is to rebuild a global free trade network centered around the U.S., leveraging America's own technological strength and market scale. Therefore, the fundamental goal of the U.S. government is to structurally reorganize the global trade system, a demand that is likely to dominate U.S. trade policy for the long term. As a result, the U.S. needs to fully reduce its deep reliance on China’s industrial and trade chains and build a more resilient and secure supply chain centered around the U.S.
Therefore, the tariff conflict between the U.S. and China will continue for quite some time, and the related friction and conflicts will be difficult to resolve in the short term. For Chinese industries and enterprises, further adjustments to their global strategies have become quite urgent. Some Chinese commentators believe that the Middle East, particularly the Gulf countries, should be considered as a potential "haven" for China’s foreign trade. These commentators argue that trade and investment between China and the Gulf region have seen significant progress in recent years, with Chinese green technologies and products being widely exported to such countries, and Gulf capital increasingly being invested in China. Furthermore, the U.S. has imposed only a 10% tariff increase on major Gulf nations, making the region an ideal "transit" and "absorbing" hub for Chinese goods. However, industry insiders have pointed out that this conclusion may be overly optimistic.
Regarding the recent U.S. tariff trends, for Gulf countries, the indirect effects are more significant than the direct effects. Industry experts have pointed out that the major Gulf countries (Saudi Arabia, the UAE, Kuwait, Qatar, Oman, and Bahrain) have limited export volumes to the U.S., and the types of goods they export are relatively concentrated, mainly consisting of oil products, plastics, aluminum, fertilizers, and minerals. Moreover, in the trade relationship, the U.S. maintains a relatively favorable trade surplus with these countries, and key export goods like oil and aluminum have been exempted from the tariffs. Therefore, the direct impact of the tariffs is relatively limited.
However, the corresponding indirect effects should not be underestimated.
First, industry insiders have pointed out that U.S. tariff policies could deeply affect oil revenues, the economic lifeblood of Gulf countries. When the "reciprocal tariffs" were first announced, Citigroup warned that even a 10% tariff could lead to a reduction in global oil demand growth expectations for 2025, from the current forecast of 900,000 barrels per day to just 600,000 barrels per day, with further downside risks. For Gulf countries, which are still heavily reliant on oil exports, the negative effects should not be underestimated, as these nations typically need oil prices in the range of USD 90 to USD 100 per barrel to balance their budgets. Additionally, countries like Japan, South Korea, and India, in an effort to narrow their trade surpluses with the U.S., are likely to increase their imports of U.S. liquefied natural gas (LNG). This could negatively impact the Gulf countries’ long-term LNG agreements with these nations, potentially complicating their future LNG exports.
Second, the financial stability and strength of the Gulf countries could be impacted. Industry insiders have noted that following the introduction of the "reciprocal tariffs", the U.S. dollar index experienced a dramatic drop, falling from 110 in January to below 100 at one point. For Gulf countries, which peg their currencies to the U.S. dollar, a depreciating dollar means reduced purchasing power and higher import costs. Over the past two years, Gulf countries’ fiscal revenues have fallen short of expectations, and if government spending is forced to rise, fiscal pressures are likely to intensify. Moreover, the devaluation of the dollar could exacerbate inflationary pressures within the U.S., leading the Federal Reserve to face potential interest rate hikes, which could negatively affect the financial stability of the Gulf countries. Since April, major stock indices in the Gulf region have suffered significant drops, with Saudi Aramco’s stock price seeing a single-day decline of over 6%. The volatility in financial markets could lead to capital outflows from the Gulf countries. This may limit the ability of major financial players such as Saudi Arabia and the UAE to develop new global financial hubs, thus weakening their financial strength and influence.
Third, the uncertainty surrounding industrial transformation in the Gulf countries has increased. Industry insiders emphasize that Gulf countries have long been working to reduce their dependence on the oil industry by pushing for industrial diversification. According to official Saudi data, non-oil exports showed a significant increase in the fourth quarter of last year. However, non-oil industries, from any perspective, have not yet become a true economic pillar for the Gulf countries, and their development is still heavily reliant on resources from the oil sector. The disruption to oil revenues and financial stability means that Gulf countries’ ability to continue driving industrial transformation will face even greater uncertainty. Moreover, experts have pointed out that over the past half-century, the Gulf countries' relatively successful economic diversification efforts have been most apparent in the shipping and logistics sectors. However, the ongoing U.S. tariff war could lead to a decline in international trade volumes for a certain period. A decrease in trade could negatively impact the Gulf's role as a key hub in international container shipping, air cargo, and logistics networks. Furthermore, the U.S. is focusing its supply chain restructuring efforts on countries like Vietnam and Mexico. If these countries gain a stronger position in global shipping and logistics, the Gulf countries' role in these areas may be further reduced.
Regarding the economic and trade relations between China and the Gulf countries, the pressure from U.S. tariffs may not necessarily lead to a closer partnership between the two sides.
In terms of commodity trade, there are both favorable and unfavorable factors at play, and these need to be carefully assessed and managed. Industry experts have pointed out that, due to China’s own energy transition progress, its demand for refined oil products has gradually weakened, making it difficult to expand the space for importing more oil from the Gulf. As for general commodity trade, as mentioned earlier, if the financial strength of the Gulf countries weakens and fiscal pressures rise, their international purchasing power will also decline, which could incentivize Gulf countries to increase imports from China. Sectors such as consumer electronics (phones, computers), light manufacturing (furniture, toys), electrical equipment, automobiles, machinery, and home appliances are likely to see increased imports from China. However, countries like Saudi Arabia, which hold a dominant regional position, have long pursued industrial autonomy and have strong protectionist tendencies toward their weaker industries. As a result, Saudi Arabia’s attitude and policies toward increasing imports of Chinese goods might be more complex and could influence the positions of other Gulf countries as well. Continued communication and engagement will be needed to align interests and secure mutual cooperation of both sides.
When it comes to investment, many Chinese companies with the intention of "going global" are considering expanding into overseas markets, including the Gulf countries. However, industry insiders emphasize that the Gulf countries' capacity to absorb Chinese investments and manage industrial transfers is questionable. The Gulf countries' own conditions, such as market capacity and the scope of their regional influence, are key factors determining their ability to handle industrial transfers. While Gulf nations rank high globally in terms of GDP per capita and have strong consumer purchasing power, their populations are generally small, with limited overall market absorption capacity. Aside from Saudi Arabia and the UAE, which have populations in the tens of millions, most other Gulf countries have populations in the millions or even fewer. If Chinese companies plan to invest in the Gulf primarily to target local consumption markets, the market may saturate relatively quickly, given the scale of the population. This could lead to increased competition between Chinese firms themselves, which is already playing out in some sectors. As a result, the potential for sustained growth in such markets might be limited, and companies could face intense competition, reducing the overall profitability of such investments.
As for the scope of regional markets, if some Chinese companies are looking to the Gulf countries as a gateway to reach markets in the U.S. and Europe, past experiences raise concerns. For instance, Chinese enterprises in Egypt and Morocco have faced anti-dumping and countervailing duty investigations from the U.S. and Europe. Similarly, the examples of Vietnam and Mexico under the current "reciprocal tariffs" system suggest that this option may become increasingly difficult. If the focus is on neighboring markets such as Africa or Central Asia, the local consumer purchasing power remains relatively limited. Although the Gulf countries have relatively strong industrial foundations within the broader Middle East and North Africa (MENA) region, aside from BYD's preliminary intentions, Chinese automakers currently have no clear plans to establish local manufacturing facilities in the region. This shows the long road ahead for investment cooperation between China and the Gulf countries, particularly in terms of industrial and supply chain collaboration.
After a period of short-term turbulence, the U.S. bond market has started to stabilize, and personnel changes within the Chinese government also indicate that China is preparing to formally negotiate with the U.S. on related trade disputes. Information from foreign media suggests that the U.S. and China may have already engaged in bilateral economic and trade discussions at multilateral diplomatic forums. However, the broad and deep differences between the two countries indicate that this process is likely to be prolonged, and the subsequent developments will be very complex. As a result, the shadow of U.S. tariffs is likely to continue to trouble Chinese companies’ global strategies and operations. As a rapidly developing partner in recent years, the Gulf countries still present many uncertainties for Chinese companies in terms of capacity transfer and market expansion. Hence, it would be unwise for these companies to assume that the Gulf is a safe haven and rush into it. However, in terms of future cooperation between China and the Gulf countries, if the Gulf increases imports of Chinese goods, China should seize the opportunity to further push for the use of the yuan in trade settlements within the Gulf region. At the same time, the Gulf countries' own demand for international capital will provide space for further financial cooperation between the two sides.
Final analysis conclusion:
The main target of the current tariff war in the U.S. is undoubtedly China. Finding a new "safe haven" has been a key focus for Chinese enterprises. Based on the analysis above, in terms of goods production and trade, Gulf countries are unlikely that true safe haven. That being said, in the financial sector, there is some room for cooperation.
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Zhou Chao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.
