Abu Dhabi

Source: Alittihad Newspaper

Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

Global trade is undergoing radical transformations due to escalating protectionist policies. The United States recently imposed 25 percent tariffs on all imports from Canada and Mexico, in addition to 10 percent tariffs on Canadian energy products and 10 percent tariffs on Chinese imports. Washington’s stated justification for these measures cited national security concerns, citing examples such as controlling illegal immigration, combating drug trafficking, and supporting local industries. Although these policies directly target the economies of North America and East Asia, their effects will undoubtedly be felt across global markets, including Arab economies.
Immediate Market Implications
: In the days following the tariff announcement, the Canadian dollar fell by 1.5 percent, reaching a five-year low, while the Mexican peso fell by 2.2 percent against the US dollar. These indicators reflect financial markets’ concerns about the potential repercussions of these measures, especially for economies that rely heavily on trade with the United States. Global currency markets, including those in emerging markets, will experience a wave of volatility that reflects the economic disruption caused by trade wars.

In an expected move, Canada, Mexico, and China quickly responded to the US measures. Canada announced a 25 percent tariff on $155 billion in US goods, while Mexico responded with a package of tariff and non-tariff measures, but did not disclose the details of these measures. The Chinese government announced tariffs of up to 15 percent on US energy imports and other products, and also added five critical minerals with military and civilian applications to its export control list. This will impact US companies that rely on these materials, such as those in the electronics, telecommunications, and renewable energy industries. Overall, these three countries have indicated that they will challenge the legitimacy of the tariffs under international trade law. Importantly, all indicators point to the world entering a phase of open trade wars, which will inevitably have serious repercussions for the global economy.
Potential Economic Impacts
: The administration’s view of the tariff strategy is that it will increase federal tax revenues by $106.1 billion in 2025, or approximately 0.35 percent of GDP. The narrative also suggests that this policy will help reduce the goods trade deficit, which reached an all-time high of $1.2 trillion in 2024.

Economists warn that tariffs could lead to higher prices for imported goods in the United States, putting additional pressure on inflation rates, especially in vital sectors such as energy and agriculture. For example, the United States imports 52 percent of its oil from Canada, and imposing a 10 percent tariff on Canadian petroleum products could raise gasoline prices in the US market by about 10 cents per gallon, weakening purchasing power and decreasing consumption rates.

Economists also point out that American industries, which rely on global supply chains, will face new challenges, particularly the automotive and consumer electronics sectors, which will be most vulnerable given their reliance on imported components from Canada, Mexico, and China. The rising cost of raw materials and imported parts could disrupt and curtail production processes, raise operating costs, and increase the price of final products. American industries may become less competitive with foreign companies in their domestic and international markets.

Globally, according to a survey conducted by JPMorgan, the global trade community expects tariffs to impact inflation rates, stock indices, and major currencies in global markets through 2025. This is confirmed by a 2.35 percent decline in Nasdaq futures and a 1.8 percent decline in S&P 500 futures. In European markets, the euro fell more than 1 percent to its lowest level in two years, while Asian markets also saw declines of an average of 2 percent.

Direct Impacts on Arab Countries
Arab countries, particularly oil exporters, are a pivotal point in global trade, making them vulnerable to unforeseen repercussions. The likelihood that tariff policies will lead to an economic slowdown in Canada, Mexico, and China could result in a decline in global energy demand, reviving scenarios of oil price volatility. Such changes could negatively impact the revenues of Arab countries, which rely primarily on oil exports to finance their public budgets.
Furthermore, reciprocal protectionist measures could push affected countries to redirect their exports to new markets. This, in turn, would increase competition in Arab markets, particularly in the manufacturing and agricultural sectors. China may seek to export more of its products to the Middle East to compensate for the decline in US demand, which could impact local industries in Arab countries.

Strategic Recommendations for Policymakers:
The rise of global protectionist policies imposes on Arab countries the need to reevaluate their economic and trade strategies to ensure their ability to adapt to these shifts. This requires policymakers to focus on a set of strategic measures aimed at mitigating negative impacts and maximizing the opportunities arising from potential changes in the pattern of global trade.

First: Diversifying the National Economy
. Arab economies, particularly in the Gulf states, are among the most vulnerable to global market changes due to their heavy reliance on energy exports. With the potential decline in demand for oil due to the economic slowdown in major markets such as China, Canada, and Mexico, diversifying national income sources will become a top priority. Arab governments should focus more on directing investments toward non-oil sectors such as technology, advanced industries, tourism, and the digital economy. Agricultural production and manufacturing industries can also provide economic alternatives that contribute to supporting financial sustainability.
Second: Regional Economic Integration.
In light of trade tensions between major powers, regional economic integration has become an important strategic factor for protecting Arab economies from external risks. The Greater Arab Free Trade Area (GAFTA) agreement remains underutilized and must be activated to increase trade rates among Arab countries and reduce dependence on foreign markets. It is also necessary to work to remove trade barriers between Arab countries, particularly in terms of simplifying customs procedures and encouraging joint investments, particularly in logistics infrastructure and supply chains, to ensure the smooth and organized flow of goods and commodities within the region.

Third: Monitoring global trade shifts.
Addressing global trade shifts requires continuous and close monitoring of trade policies in major markets such as the United States, China, and the European Union to anticipate their impact. Arab countries need to establish specialized units for big data-based economic and trade analysis within ministries of economy and trade. These units would be responsible for assessing risks and providing informed recommendations to decision-makers on ways to address trade developments. It is important for these units to work in collaboration with regional and international economic research centers to secure accurate information on global markets and their predictions of future economic trends.

Fourth: Trade Diplomacy.
With the rise of protectionist policies, Arab countries need to raise their representation in international trade organizations, such as the World Trade Organization, the G20, and major economic blocs, to ensure the protection of their commercial interests. Building economic alliances with countries negatively affected by US tariff measures, such as Canada, Mexico, and China, presents an opportunity to expand trade and investment cooperation and achieve common interests. In addition, new bilateral trade agreements can contribute to reducing tariffs on Arab goods and help offset any losses resulting from shifts in global trade trends.

Fifth: Infrastructure for Local Industries.
With the expansion of protectionist policies, the ability to rely on local production becomes crucial to achieving economic independence, which involves controlling the local economy and providing basic needs without heavy reliance on international trade or foreign support. In this context, Arab countries should prioritize developing integrated industrial strategies based on localizing vital industries such as the automotive, pharmaceutical, and electronics industries to reduce reliance on imports. Arab countries must provide investment incentives, such as tax exemptions, financial support, and encouraging research and development, to support the growth of high-value-added industrial sectors. The potential for employing advanced manufacturing technologies, such as robotics, artificial intelligence, and 3D printing, should also be explored to raise productivity and reduce reliance on foreign imports.

Sixth: Sectoral Growth Opportunities from Trade Transformations
Although international protectionist policies pose significant challenges, they may also open up growth opportunities for some Arab sectors. If global policies lead to a reorganization of trade routes, Arab countries may find themselves in a position to expand their exports to markets facing shortages of certain goods and products due to customs restrictions. The agricultural sector could be one of the beneficiaries, as many countries that rely on agricultural imports from the United States may seek new alternatives. Logistics and maritime transport services are also increasingly important in unlocking these trade opportunities, especially if Arab countries are able to develop their ports and affirm their status as regional and international trade hubs.

Seventh: Food Security and Self-Sufficiency.
With the rise of protectionist conflicts, global food supply chains become more vulnerable to disruption. Arab countries must adopt national food security strategies that include supporting local production, encouraging modern agricultural technologies, such as smart agriculture and aquaculture, and increasing strategic stocks of basic commodities. Furthermore, efforts must be made to reduce the risks resulting from restrictive trade policies by diversifying import sources through establishing economic partnerships with multiple countries. This ensures diversified food supply sources and reduces the risks associated with reliance on a single country as the primary source. Such partnerships could include commodity exchange, trade facilitation, opening new markets for products, and implementing joint projects.

Eighth: Digital Infrastructure and Financial Technology.
Financial technology and digital payment systems can significantly contribute to facilitating and simplifying trade between Arab countries and the rest of the world, while improving the efficiency and speed of international trade transactions. Digital transformation and the use of advanced technologies such as blockchain in supply chains can also contribute to improving the flexibility and reliability of Arab digital trade, reducing operational costs, and ensuring unprecedented levels of accuracy and transparency in financial transactions and transactions.

Ninth: Cooperation with emerging and rising economies
. With the increasing ambiguity and uncertainty surrounding the trade policies of major powers, Arab countries need to focus their attention on expanding and developing their trade relations with emerging markets, such as India, one of the largest economies in Asia, and Southeast Asian countries experiencing rapid economic growth, such as Vietnam, Indonesia, and the Philippines, in addition to Latin American markets such as Brazil and Mexico. These markets represent strategic opportunities, as they enjoy promising levels of economic growth and rising consumption rates, making them promising markets for Arab goods and services. Establishing strong economic partnerships with these markets can provide Arab countries with stable trade alternatives, as well as potentially contributing to the creation of new export and investment opportunities.

The New Global Trading Order
: In short, the tariff war increases global economic uncertainty and will impact trade balances, central bank policies, and market stability. The full extent of these effects will depend on the duration and degree of escalation in trade tensions.

Amid these transformations, a pivotal question arises: Is the time ripe to authorize a restructuring of the global trading system? Some may view the protectionist policies pursued by developing economies as mere responses to economic variables, expected to be limited in time. However, they in fact bear indications of structural shifts in the rules of global trade. If these policies persist, we are expected to witness a reshaping of the global trade map, in which affected countries will race to seek alternatives and new alliances, leading to the emergence of unprecedented trade patterns. It is clear that the future holds winds of change that will sweep away traditional economies, and the only way out will be through renewal and innovation beyond the norm.

For Arab countries, these changes present ambiguous and confusing challenges. For some countries, this phase will push them to restructure their economies toward diversification, while for others, it will exacerbate economic challenges unless bold reform steps are taken to achieve the required balance. The most obvious reality is that protectionist policies will create a new economic world in which Arab countries will find themselves at a critical juncture. This will require them to adopt bold visions and strategies to secure their economic future amid unstable trade environments and fierce competition with new economic powers seeking to fill the gaps left by global trade tensions.