Oil-rich Gulf risks faces collateral damage in Trump trade war

A Pennsylvania steelworker checks the temperature of molten metal in a furnace. US President Trump’s move to introduce tariffs on steel imports has triggered a global backlash and led to fears that a trade war could hurt Gulf economies. (AFP)
Updated 11 March 2018
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Oil-rich Gulf risks faces collateral damage in Trump trade war

LONDON: Gulf countries will not be able to fully escape the impact of any global trade wars that could break out following US President Donald Trump move to impose tariffs on steel and aluminum imports, said analysts.

Despite the region’s oil wealth and unlikelihood that any tariffs would be imposed on energy imports from the Gulf, the GCC remains vulnerable to any widespread economic downturn, said Monica de Bolle, senior fellow at the Peterson Institute for International Economics based in Washington DC.

“Because of oil, things are somewhat protected, at least a little more than rest of world. But that is not to say the region would escape from the basic harm done to global economy as a whole,” she told Arab News, referring to the potentially damaging effects of a rise in protectionism.

Beyond oil, the region is an important location for the trans-shipment of goods, with millions of tons of freight passing through ports such as Jebel Ali in Dubai and Jeddah in Saudi Arabia.

Trump announced on March 1 that he would impose tariffs of 25 percent on imports of steel and 10 percent on aluminum imports. The president said that the tariffs would counter the cheaper metals coming into the US which he said were destroying the country’s domestic steel and aluminum industries. He later tweeted that “trade wars are good, and easy to win.”

The move has triggered fears of a global trade war with policymakers from Brussels to Beijing planning their response.

The EU has considered placing tariffs on the import of US goods, such as Harley-Davidson motorbikes or Levi’s jeans.

The tariffs have been strongly criticized by the International Monetary Fund (IMF) and the director-general of World Trade Organization (WTO), Roberto Azevedo, has warned that it could even plunge the world into a “deep recession.”

An official from China has said that it would take action if the tariffs started to hurt Chinese interests. Canada’s Prime Minister Justin Trudeau has spoken to Trump to express his “serious concern” about the tariffs, saying the move would “not be helpful” to concluding a deal on the North American Free Trade Agreement (NAFTA).

In the Gulf, countries that export a lot of aluminum, such as Bahrain, could be the most vulnerable to Trump’s tariffs, said Jason Tuvey, Middle East economist at Capital Economics.

But he told Arab News that the Gulf’s ‘strategic importance’ to the US could limit the impact.

“It’s quite easy to imagine a scenario where the Gulf countries manage to persuade the Trump administration to provide them with exemptions. In terms of a broader trade war, unless tariffs are extended to oil (which seems highly unlikely), there will not be a major impact on the Gulf economies,” he said.

De Bolle warns that despite the US’s strategic interests in the Gulf, it is hard to predict what the Trump administration will do next.

“There really isn’t any reason for the US to go after energy products … but who knows,” she said.

“This administration is clearly on a war path in terms of what they want to do with the trade deficit. They really want to see a reduction in the deficit.”

“Obviously this is making many people around the world nervous. I don’t think we can rule out a trade war, and then we have an unhinging of the global economy which affects everybody,” she said.


South Korea downgrades Japan trade status as dispute deepens

Updated 18 September 2019

South Korea downgrades Japan trade status as dispute deepens

  • The change comes a week after South Korea initiated a complaint to the World Trade Organization
  • The new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan

SEOUL, South Korea: South Korea on Wednesday dropped Japan from a list of countries receiving fast-track approvals in trade, a reaction to Tokyo’s decision to downgrade Seoul’s trade status amid a tense diplomatic dispute.
South Korea’ trade ministry said Japan’s removal from a 29-member “white list” of nations enjoying minimum trade restrictions went into effect as Seoul rearranged its export control system covering hundreds of sensitive materials that can be used for both civilian and military purposes.
The change comes a week after South Korea initiated a complaint to the World Trade Organization over a separate Japanese move to tighten export controls on key chemicals South Korean companies use to manufacture semiconductors and displays.
Seoul has accused Tokyo of weaponizing trade to retaliate against South Korean court rulings ordering Japanese companies to offer reparations to South Koreans forced into labor during World War II. Tokyo’s measures struck a nerve in South Korea, where many still resent Japan’s brutal colonial rule from 1910 to 1945.
According to South Korean trade ministry, the new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan, compared to the five days or less it took under a simpler inspection process provided for favored trade partners.
Lee Ho-hyeon, a South Korean trade ministry official, said the change would affect about 100 local firms that export items such as telecommunications security equipment, semiconductor materials and chemical products to Japan. He said Seoul will work to minimize disruption to South Korean companies.
Japan for decades has enjoyed a huge trade surplus with South Korea, an economy that’s much more dependent on exports. Many major manufacturers heavily rely on parts and materials imported from Japan.
But the dispute is taking a toll. Exports to South Korea from Japan fell 9.4% last month, Japan’s Finance Ministry reported Wednesday.
The trade dispute between the neighbors erupted in July, when Japan imposed tighter export controls on three chemicals South Korean companies use to produce semiconductors and displays for smartphones and TVs, major export items for South Korea. It cited unspecified security concerns over Seoul’s export controls.
A few weeks later, Japan dropped South Korea from its own trade “white list,” triggered a full-blown diplomatic dispute that took relations between the US allies to their worst in decades.
The dispute has spilled over to security issues, with Seoul declaring it plans to terminate a bilateral military intelligence-sharing pact with Japan that symbolized the countries’ three-way security cooperation with the United States in the face of North Korea’s nuclear threat and China’s growing influence.
Following an angry reaction from Washington, Seoul later said it could reconsider its decision to end the military agreement, which remains in effect until November, if Japan relists South Korea as a favored trade partner.
Seoul announced its plans to downgrade Tokyo’s trade status in August before holding a 20-day period to gather opinions on the decision, during which the Japanese government voiced opposition to the move it described as “arbitrary and retaliatory,” Lee said.
He said Seoul needs to strengthen controls on shipments to a country that’s “hard to cooperate with” and fails to uphold “basic international principles” while managing export controls on sensitive materials.
South Korea previously divided its trade partners into two groups in managing export controls on sensitive materials. Following Wednesday’s change, South Korea now has an in-between bracket where it placed only Japan, which would mostly receive the same treatment in trade as the non-favored nations in what had been the second group.