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A 10% tariff on China – and a tricky calculation for the Gulf

US President Donald Trump with China's President Xi Jinping at a G20 conference: both countries are vying for Gulf trade Reuters
US President Donald Trump with President Xi Jinping of China at a G20 conference: both countries are vying for Gulf trade
  • China hits back with levies on US
  • Gulf’s links to Beijing under scrutiny
  • Chinese exporters may look to GCC

At one minute past midnight in Washington, the United States’ 10 percent tariff on Chinese imports came into effect. Beijing retaliated moments later, announcing even heavier levies on US goods from next week.

Canada and Mexico were granted a temporary reprieve after talks on Monday, but there was no last-minute deal for President Donald Trump and China.

Observers in the Gulf – which has historically sought to maintain a balance between East and West – are now wondering how the tit-for-tat will affect their own relations.

Gulf-China trade has risen quickly over the past decade and is forecast to overtake Gulf-West trade in 2027, according to a study from think tank Asia House. Trump may challenge that trend, says the December 2024 report, ramping up pressure on Gulf governments to curtail co-operation with Beijing. 

“There have been some areas in the China-Gulf trade relationship where we have seen some pressure from the US, such as in tech and AI. Trump may continue and expand on that,” says Freddie Neve, lead Middle East associate at Asia House and the report's co-author.

The president could also encourage US companies to do more deals with the Gulf, according to Neve. “He might be willing to increase trade and investment with the Gulf states as a way of competing for influence with China in the region.”

Faced with higher US tariffs, Chinese exporters could work harder to sell to non-US markets, including the Gulf. 

About half of China’s trade with the Gulf is based on hydrocarbons, making it an important region for energy security.

Yun Sun, senior fellow and co-director of the East Asia programme at not-for-profit organisation the Stimson Center, suggests China could buy more oil and gas from the US under Trump, which “stands to dilute the [Gulf] region’s importance for China’s energy supply”.

This would put downward pressure on Gulf-China trade.

She also highlights the importance of technology deals. “Trump could also be more stringent and critical of the region’s high-tech co-operation with China. We have seen that in the space of 5G and AI." 

Non-oil sector gains

James Swanston, Mena economist at Capital Economics, says trade between the Gulf and China totalled around $250 billion in 2024. It is likely any expected increases between now and 2027 would mostly be in the form of additional Gulf oil sales.

“Outside of oil, however, there may be less scope for gains as non-oil sectors in the Gulf states expand at a modest pace, so demand for Chinese imports may not grow at quite that pace,” Swanston says.

“The impact of Trump's presidency may be a partial downside to this growth, too, if the Gulf states are to move away from China's sphere of influence and towards the US.” 

In the first few hours of Trump’s second term, Crown Prince Mohammed bin Salman vowed to increase Saudi Arabia's investments and trade with the US by at least $600 billion over the next four years.

President Xi Jinping and the crown prince have also exchanged several official visits in recent years. These have unlocked billions of dollars in deals, including a series of agreements with the Public Investment Fund signed in August 2024 and valued at $50 billion.

The Gulf states’ economic diversification programmes are starting to unlock new sectors for trade, which have complemented China's export strategy.

Contractors and materials from China are being used in many Gulf projects. The drive towards greater sustainability and net-zero emissions is resulting in more trade in Chinese technological know-how and expertise in renewable energy.

“Most goods and services relating to this are originating from China but, as the Gulf works to develop expertise and manufacturing capabilities in renewables and hydrogen, we may see more goods originating from the Gulf going over to China,” Neve says. 

It is likely that high-level visits to the Gulf by Chinese officials will continue in the year ahead, and further deals will be announced. Likewise, Trump is expected to visit Saudi Arabia on one of his first overseas trips. 

“We've seen some quite big deals signed off the back of FII [Future Investment Initiative] and off the back of PIF visiting China recently. I'd be watching for the implementation of those deals,” says Neve. 

He also expects to see more trade between the Gulf and China being conducted in yuan: “Gulf states have to navigate that because they have foreign reserves in US currency and they peg their currencies to the US dollar.”