Opinion Trade A Trump win would impact Gulf trade and oil markets A rise in protectionism following the US election could trigger a re-ordering of world trade By Scott Livermore October 21, 2024, 1:53 PM Brian Snyder/Reuters Donald Trump and Vice President Kamala Harris shake hands at a presidential debate. Oxford Economics’ Global Scenarios Services has modelled potential outcomes of the election The US presidential race is still neck-and-neck, as incoming data in battleground states suggests the election is too close to call. Barring an “October surprise”, the contest is likely to remain close until polling day itself on November 5. Added policy uncertainty arises from a lack of clarity on whether the new president’s party will control Congress. The day after the election is therefore likely to be colourful for the global economy and markets. The most likely outcome seems to be either Vice President Kamala Harris is elected president but with a divided Congress, or Donald Trump wins with a Republican Congress. Oxford Economics’ Global Scenarios Services has modelled the outcomes of these two scenarios. We find that a Harris presidency will provide a boost to the US economy over the next couple of years through the expansion of social benefits, but is unlikely to materially alter the economic outlook for the GCC. An alternative outcome is a full-blown Trump presidency in which he not only wins the White House and Republicans regain control of Congress, but a re-elected President Trump follows through in full on his election pledges. This identifies numerous global transmission channels that could impact the GCC. Fiscal stimulus boosts demand: Looser fiscal policies are likely to provide significant support to the US economy. US equities strengthen in anticipation of tax cuts and higher public spending. Trade tensions rise as the US hikes tariffs substantially: The US imposes 60 percent tariffs on Chinese goods imports and 10 percent tariffs on all other major trading partners, phased in over 2026 and 2027. In response, China raises tariffs on US goods imports to 40 percent; other countries retaliate in full. The US shuts down China’s access to new technology: A more limited flow of knowledge and intellectual property weighs on Chinese productivity. China imposes reciprocal measures on the US. Renewed immigration restrictions: This implies 560,000 fewer immigrants per annum compared to the baseline. Energy market: Trump has promised to unleash a new era for fossil fuels if he wins, implying lower oil and gas prices. He has also promised to roll back parts of the Inflation Reduction Act, such as clean vehicle tax credits. Financial sector: The Federal Reserve halts monetary easing and sentiment deteriorates globally, which affects domestic demand, business confidence and global equity markets. The implications for oil and gas prices under a Trump presidency are weighted to the downside A ratcheting up in protectionism could trigger a major re-ordering of world trade. Oxford Economics’ modelling suggests Trump’s proposed tariffs could slash US-China bilateral trade by 70 percent and cause hundreds of billions of dollars’ worth of trade to be eliminated or redirected. Unsurprisingly, the US becomes both more inward-looking and more focused in trade terms on those partners with whom it has free trade agreements (FTAs). Imports from non-FTA countries in Asia, Europe and other emerging economies are likely to drop. Bahrain and Oman have FTAs with the US but weaker global growth and lower trade are likely to weigh on prospects in the GCC. The UAE and wider GCC stand best to flourish in a globalised world, whereas a bifurcated world, the likely consequence if Trump is re-elected, is likely to be more of a challenge for small open economies seeking a broad set of opportunities and investment partners. The implications for oil and gas prices under a Trump presidency are weighted to the downside. One of the cornerstones of Trump’s energy policy has been the expansion of domestic oil production through deregulation and the granting of more licences for exploration. During the first Trump administration these measures caused a surge in output, leading to the US becoming the largest oil producer in the world in 2018, a position it has maintained to this day. Surging US production has led to increased exports and has contributed to excess global supply that has only been tempered somewhat by Opec+ cuts. With US production remaining at all-time highs, we expect production growth will be stronger under a Trump administration. Energy and Opec are at the centre of the US election campaign Trump redux could bring in the law of unintended consequences Trump 2.0 would trigger shockwaves in GCC and global markets Even if Opec+ does not cut output further, raising quotas in the face of weaker oil prices are likely to be tough. GCC governments will therefore have to contend with lower oil revenues which may hamper their ability to implement growth and diversification strategies. This will be particularly challenging in more fiscally challenged countries such as Oman and Bahrain but potentially also in Saudi Arabia where Vision 2030’s financing requirements are considerable. In the GCC the impact of a re-elected President Trump will take time to build. A second term is likely to have little bearing on the growth picture in 2025 and 2026. Instead, the impact is likely to be cumulative on the back of new trade patterns, redirected FDI and the new oil dynamics. A wild card of a new Trump administration is his impact on the conflict in Israel and Gaza. If elected, will he be able to achieve a peace deal or will he ratchet up tensions with Iran? The answer to this question, if it comes to pass, will have pronounced implications for the short-term economic outlook in the GCC. In an interview with Al Arabiya TV news at the weekend, Trump spoke of his strong personal relationships with Arab and Israeli rulers and promised to bring about peace. “I want to see the Middle East get back to peace, real peace, a peace that is going to be a lasting peace. And that is going to happen. I was respected over there and [had] great relationships with so many,” Trump said. Scott Livermore is chief economist at Oxford Economics Middle East