Stranglehold of US Protectionism Chokes Arab Economies in 2024
Economic Policies and Trade Wars Instigated by Trump, Brewing a Storm of Uncertainty
From the silk roads to the digital highways, trade has been the artery fueling the exchange of wealth, ideas, and cultures, knitting civilizations, and shaping human history. Today, trade and diplomacy often share a contradictory dance, as nations often tweak their foreign policies to boost trade and political interests. But alas, trade's roots entwine not only with national economies but also with tariffs, as they serve as revenue generators or shields for competitive advantages.
In the current multilateral, rules-based trading system, supported by the World Trade Organization (WTO), global economic growth flourishes, and living standards of millions are elevated, fostering tranquil coexistence among nations. Yet, this system isn't without its flaws—plenty that require fixing in the WTO and other international forums, through dialogues and collaboration, not through global tariffs and trade barriers, as the US has done now.
The recent protectionist impulses of President Trump echo the past, reminding us of history's catastrophic dance of trade barriers. Back in the 1930s, during the decade-long global economic depression, known as the 'Great Depression,' US President Herbert Hoover signed the Smoot-Hawley Tariff Act into law.
Raising tariffs on thousands of imported goods, this act aimed to safeguard American jobs and industries from foreign competition. However, the US tariffs then sparked retaliatory tariffs by neighboring countries like Canada, Mexico, United Kingdom, France, and others, leading to an overall fall in global trade by a staggering 66 percent between 1929 and 1934.
While the fall in global trade can't be entirely pinned on the Tariff Act, it played a significant role in aggravating the already vulnerable global economy. Unlike today, in 1929, trade represented only about 15 percent of global GDP, and less than 5 percent the GDP of the US.
The Tariff Act'sundoing came with the Reciprocal Trade Agreements Act of 1934, signed by newly-elected US President Franklin D. Roosevelt. This Act reduced tariff levels, promoted trade liberalization, and fostered cooperation with foreign governments, paving the way for the creation of the General Agreement on Tariffs and Trade (GATT) in 1947-48, and its successor the WTO, established in 1995.
Fast forward to 2024, with trade making up more than half of global GDP, the potential repercussions of a tariff war could be much graver than in the 1930s. According to the World Bank, trade accounted for over 58.5 percent of global GDP in 2023, with imports and exports significantly boosting national GDPs. Hence, the economic ramifications of tariff wars could leave a serious dent in countries' economies.
In early April, Director-General of WTO, Ngozi Okonjo-Iweala, warned that escalating trade tensions between the US and China could lead to an 80 percent contraction in bilateral trade, raising significant risks for the global economy, particularly for least developed countries. These reciprocal tariffs could negatively impact global growth, spark a worldwide recession, and encourage worldwide trade fragmentation, potentially causing a long-term decline in global real GDP by about 7 percent.
A recent report by the UN Economic and Social Commission for Western Asia (ESCWA) highlighted that global upheaval in trade following increased trade protectionism and higher tariffs by the US are affecting Arab economies, posing a threat to over $22 billion in non-oil exports from the region.
Between 2013 and 2024, the value of Arab non-oil exports to the US surged by over 57 percent, from $14 billion to $22 billion. However, since the peak in 2023, these exports have started to dwindle, and are now at risk due to US protectionism.
Since the tariff impacts vary among countries in the region, ESCWA identified Jordan, Bahrain, and the United Arab Emirates as being at heightened risk as they have heavily invested in sectors that depend on the US market. Jordan's vulnerability comes from nearly 25 percent of its total exports going to the US, Bahrain's exposure arises from its reliance on aluminum and chemical exports, and the UAE could suffer from estimated $10 billion in US-bound re-exports due to the tariffs levied on third country goods.
On the other hand, Kuwait's exposure to US tariffs is relatively less compared to Jordan, Bahrain, or the UAE, with exports to the US totaling $1.6 billion in 2024, down from $2 billion in 2023. Meanwhile, imports from the US dropped from $2.8 billion in 2023 to $2.4 billion in 2024, with the US trade surplus with Kuwait plummeting by 33 percent, from $1.2 billion in 2023 to approximately $768 million in 2024.
Even so, US tariff escalations have instigated a sharp drop in global oil prices, testing the resilience of Gulf Cooperation Council (GCC) states, as oil makes up a considerable portion of these countries' economies. Additionally, reduced imports by major global partners such as the EU and China are expected to press further on regional economies.
To combat these challenges, ESCWA suggests regional economic integration, promoting the Pan-Arab Free Trade Area, and achieving the GCC economic union. The commission also emphasizes accelerating structural reforms and reinforcing resilience through renewed investments in infrastructure and regulatory reforms to reconnect with global supply chains. Kuwait needs to closely consider these suggestions to ensure its economic sustainability and citizens' continued welfare.
- The World Trade Organization (WTO), in the current multilateral, rules-based trading system, plays a crucial role in fostering economic growth and improving living standards for millions.
- As nations often adjust their foreign policies to boost trade and political interests, they must be cautious of the potential instability that added measures like tariffs can bring to industries, finance, business, politics, and general-news.
- In the aftermath of the US-led protectionist measures in the 1930s, such as the Smoot-Hawley Tariff Act, global trade fell by a staggering 66 percent between 1929 and 1934, illustrating the negative effects of such actions on cultures and the exchange of ideas.
- In 2024, with trade representing over half of global GDP, the potential repercussions of a tariff war could be much greater than in the 1930s, posing a substantial threat to economies across the globe, including least developed countries.
- To mitigate the impact of US protectionism and ensure the economic sustainability of countries like Kuwait, ESCWA suggests regional economic integration, promoting the Pan-Arab Free Trade Area, achieving the GCC economic union, and accelerating structural reforms to reconnect with global supply chains.
