Gulf likely to escape Trump tariffs, analysts say

Reuters/Kevin Lamarque

• US has trade surplus
• Low VAT rates help
• Indirect effects possible

Saudi Arabia, the UAE and the other Gulf Arab states are likely to escape US President Donald Trump’s tariff ire, analysts say.

This is because the world’s largest economy by and large runs a trade surplus with them, their value added tax (VAT) is relatively low and they peg their currencies to the US dollar.

Trump has tasked his administration with developing a plan to impose matching levies on countries that target American goods.

Nations that maintain taxes affecting US businesses and consumers, or otherwise engage in economic and trade practices – including industry subsidies or currency support – that the White House considers “unfair” and “discriminatory” are also in his sights.

Tim Callen, a visiting fellow at the Arab Gulf States Institute in Washington and a former Gulf-focused official with the International Monetary Fund, says tariffs into the six-member Gulf Cooperation Council (GCC) customs union are relatively low, and trade with the US not particularly extensive.

“In terms of goods trade, the US was in surplus with all six GCC countries in 2024 compared to massive deficits for countries like Canada, Mexico, Japan, Korea, EU, and China,” he tells AGBI.

“Saudi Arabia has already said it will purchase and invest more with the US. I just don’t see them as a target unless he goes after them for oil prices.”

Thursday’s White House announcement around a wider tariff plan is only the first step in a strategy that will take US officials weeks if not months to implement. It is expected to yield country-by-country measures and open up space for bilateral negotiations. 

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Commerce secretary Howard Lutnick said April 2 is the earliest that the new levies might go into effect.

In presenting his tariff plans, Trump singled out value-added taxes in the European Union as a particular source of discontent.

But VAT in the GCC is relatively low at mostly 5 percent, though Saudi Arabia – the largest Arab economy — imposes a higher 15 percent rate.

In addition, the GCC states — bar Kuwait, which links to a basket that includes the US dollar, euro and yen — peg their currencies to the dollar. Hence no currency support.

“Overall I would see the risks (to the Gulf) as more indirect via tariff uncertainty hitting (global) demand and causing trade rerouting,” says Rachel Ziemba of advisory company Ziemba Insights in New York.

“It could reinforce the GCC’s relative interest in investing in the US, not trading with it.”