How Trump’s tariffs could reshape Gulf aluminium exports

Alamy via Reuters

On the face of it, US President Donald Trump’s decision to impose a 25 percent tariff on steel and aluminium imports is bad news for GCC smelters. After all, the Gulf region accounts for 16 percent of US aluminium imports, with Bahrain, Oman, Qatar and Saudi Arabia the leading suppliers.

However, since the tariffs apply uniformly to all countries – including Canada, which supplies over half of US aluminium imports – the immediate effect will be higher costs to US businesses and consumers rather than targeting any specific foreign market. Yet, this seemingly “neutral” outcome may not last for long.

Trump’s decision is driven by his desire to revitalise domestic manufacturing. Over the last 20 years, the US has declined from being the world’s largest aluminium producer to a marginal player in the industry, with only a handful of primary smelters left. 

One of the main reasons for this is the energy intensive nature of aluminium smelting. The balance of power has swung quickly to countries that either highly subsidise their energy markets or have access to cheap sources of electricity. 

China – a market firmly in Trump’s crosshairs – has leapt up the rankings to number one, joined by India and Russia in the top three. Given the optics, it is little wonder that Trump has pulled the trigger on tariffs. 

So, even though it seems that US businesses and consumers will pay a premium for more expensive consumer goods and cars, in the long term Trump believes that the price will be worth paying.

Smelters will be encouraged to invest in domestic production capacity, protected from cheap, subsidised imports. As a stopgap, the higher prices will be balanced by promised tax cuts and lower energy costs. Both from a reduction in green levies and a willingness to “drill, baby, drill”.

If this scenario is played out and the US industry is resurgent, there will be significant repercussions for the GCC aluminium industry.

Barriers to trading with one of the world’s largest and fastest-growing economies will force the region’s aluminium exporters to look for markets elsewhere.

These will include developed countries such as Germany, Japan, and Italy and emerging markets such as China, Mexico, and Turkey. Shipping services must adjust to reflect the new supply chains that will start to develop.

One consequence of the tariffs will be that the global market is likely to become saturated with exports as international suppliers from China, Russia, India, Canada and the other major producing countries compete for a limited customer base.

This in itself could have negative effects. Governments around the world are likely to seek to protect their own industries through anti-dumping legislation, including – you guessed it – more tariffs.

One result could be the fragmentation of global trade in aluminium and the regionalisation of associated supply chains. 

GCC opportunity

But Trump’s tariffs could also, paradoxically, help propel the GCC’s own manufacturing industry.

Aluminium is essential to many green transition technologies, a major imperative of the Gulf’s oil diversification strategies. It makes up 85 percent of photovoltaic panels and frames; it is increasingly replacing copper wiring in electricity grids; it is widely used in construction; and it is an essential material in producing electric vehicles. 

Suppose the US market closes to GCC aluminium exporters? In that case, the Gulf can re-focus on more local needs driven by major construction projects and the development of its own EV manufacturers, such as Saudi Arabia’s Ceer. Domestic logistics and transport services will benefit from such an outcome.

• Gulf aluminium supplies to US to continue despite tariffs
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• Trump tariffs ‘pose long-term risk to Gulf’, say economists

Although it is difficult to predict specifically how trade and supply chains will develop in the wake of Trump’s policy, there is more consensus over its impact on economic growth as a whole.

The resultant lower global economic activity will have negative consequences for oil demand, pushing down Gulf oil revenues. In turn, this could delay many of their ambitious plans for economic diversification. 

Whatever the consequences of Trump’s tariffs, it is clear that ports, shipping, transport and logistics services connected with the aluminium sector must be ready to react quickly and agilely to the changing market environment.

John Manners-Bell is CEO of Transport Intelligence Insight and founder of Foundation for Future Supply Chain