Trump’s trade agenda and the GCC: Opportunities and risks

Tariffs may not be a serious threat

The “Liberation Day” tariff plan announced on 2 April applied the minimum additional “universal tariff rate” of 10% to the GCC states on top of existing “normal trade relations” tariffs. The initial tariffs were related to the relative size of the US trade deficit with partner countries; those with which it has surpluses, including all the GCC states, were only allocated the minimum universal rate.¹²

Bahrain and Oman, who have had longstanding free trade agreements (FTAs) with the US, are also subject to the 10% minimum universal tariff rate.

However, the 90-day pause in the so-called reciprocal tariffs, announced on 9 April for all countries, and on 14 May for China, means that most countries now face the same universal rate, except for certain goods, on par with the GCC.

In the region, energy and energy products are excluded from the reciprocal tariffs, as are certain petrochemicals, at least temporarily.¹³  However, the sizable metals exports from the region are subjected to higher tariffs. A 25% rate on steel has been in place since 2018, while on 12 March, the tariff on aluminium was increased from 10% to 25%. Additionally, country-specific exemptions were removed and the scope of the tariffs was expanded to include a wider range of downstream steel and aluminium products.¹⁴

Adding a new twist, on 28 May 2025, the US Court of International Trade has ruled that the US administration’s authority invoked under the International Emergency Economic Powers Act (IEEPA) to impose, amongst others, the so-called reciprocal tariffs does not give him unilateral authority to do so. Section 232 existing tariffs (covering steel, aluminium, automotive) remain unaffected.

While future changes to US global tariffs remain uncertain, especially after the mentioned US court decision, there is reason to think that the GCC countries will remain subject to lower rates compared to other US trade partners, due to the strong diplomatic relations and commercial ties that were on display during President Trump’s visit. This would enhance the competitiveness of GCC exports compared to other nations that may face higher tariffs.

If US global tariffs persist for a prolonged period, there could be a reorganisation of trade flows. While this could benefit the GCC, it also raises the risk of dumping of excess products. There is however a question mark as to whether the tariff measures recently introduced by the US will remain as they were initially designed.

Amid this global trade uncertainty, the GCC has an opportunity to deepen economic integration and explore new trade and investment agreements. Whether it is the UAE’s Comprehensive Economic Partnership Agreements (CEPA) programme agenda or the GCC-wide free trade agreements – the region’s commitment to open trade makes it an attractive destination for investments, with a growing interest from global manufacturers.¹⁵

Lower oil, a weaker dollar and higher borrowing costs

The most significant short-term impacts of Trump’s economic policies on the GCC have been a combination of lower oil prices, a weaker dollar and higher borrowing costs.

The impact of the trade war on oil is the most dramatic, with Brent dropping by US$12 per barrel in the week after Liberation Day to a four-year low. In response, major forecasters, including the IMF, have revised down their global GDP growth projections due to the expected negative impact on oil-consuming countries, including a -0.5pp downward revision to global growth made in its April World Economic Outlook.¹⁶

Weaker economic growth weighs on oil demand, which is one of the factors that has contributed to lower oil prices in recent months as well as downward revisions in forecasts. Expectations for the average price of Brent crude this year, amongst a representative group of forecasters, are tightly clustered around a median of about US$66 per barrel.

Brent crude forecasts in April/May 2025 ($/barrel average in 2025)

_{Source: Reports from the organisations and media coverage}

Trump's election had initially driven a surge in the dollar, as measured by the Dollar Index against a basket of major currencies, to a two-year high. This was driven by conventional expectations that Trump’s tariff policies would strengthen the dollar. However, it has declined steadily since his inauguration. It was down by -5% on the eve of Liberation Day and fell a further -4% in the following two weeks, although it regained some ground in May.

The usual investor shift toward the dollar as a safe haven during turbulent times has been overshadowed by growing concerns over the US economy. This weaker dollar negatively impacts the GCC because most of the region’s revenue is in dollars from commodity sales and local currencies are pegged to the dollar whereas the bulk of imports are in other currencies. Assuming all other factors remain constant, a weaker dollar pushes up the cost of imports and migrant labour. It can, therefore, weaken both fiscal and current account balances, compounding the impact of low energy prices. On the positive side, a weaker currency would provide a competitiveness boost to non-commodity exports and the tourism sector, which is of growing importance for several GCC states.

Oil and the dollar decline

_{Source: Bloomberg}

Borrowing costs are increasing relative to what had been expected prior to Trump’s arrival. This means GCC governments that need to finance the deficits created by weaker oil prices and higher import costs will have to pay more for their debt. It also means higher borrowing costs for companies and consumers. The easing of inflation last year meant that the US Federal Reserve had begun to reduce interest rates, in turn making it possible for GCC central banks to cut their own policy rates. However, the inflationary impact of tariffs and the deportation of migrant workers has been discouraging the US Federal Reserve from cutting rates, including in its May meeting.¹⁷

The GCC economies would prefer low interest rates to make it easier to finance non-oil investments aligned with national visions. Trump’s fiscal policies could lead to US Treasury yields increasing, depending on the outcome in Congress of his budget and tax cut plans, which might boost the deficit. Yields might also increase if political tensions spur China and other countries to sell down their Treasury stockpiles. It is not yet clear how exactly this will transpire, but GCC bonds are priced against supposedly “risk-free” treasuries, so their yields rise together.

Lower oil prices and general market uncertainty are also adding to the risk premium GCC borrowers have to pay, above treasury yields. This also compounds with a weaker oil price outlook to increase market expectations of default risk, particularly for the less resilient sovereigns. Credit default swaps - the cost of insuring bonds against default - rose across the region, peaking on 9 April and remaining elevated above pre-Liberation Day levels for countries with lower credit ratings, such as Bahrain. Those with stronger fiscal positions, including low breakeven oil prices and large net foreign assets, have returned to their previous low levels, suggesting that the spike was due broader market uncertainty rather than merely concerns about an oil price near US$60. However, as of mid-May, the credit default swaps for Bahrain, Saudi Arabia and Oman remained higher than before Liberation Day, because weaker oil prices do present more of a challenge for these states.

Credit Default Swaps (5-year, basis points)

_Source: CMA

Trump prioritises the GCC

President Trump chose the GCC as the destination for his first scheduled foreign trip of his second term, just as he’d done for his first. Whereas his 2017 visit was only to Saudi Arabia, this time he also visited the UAE and Qatar, spending a total of four days in the region.

Trump was warmly received, and the visit saw high-profile announcements of over US$1 trillion in proposed “deals” - including US$600bn from Saudi Arabia,¹⁸ US$243.5bn from Qatar¹⁹ and US$200bn from the UAE²⁰ - according to the White House.

Investments in the US combine financial and political interests

The investments in the US announced during Trump’s visit included several projects such as the expansion of Aramco’s Motiva oil refinery in Texas²¹ and an investment by Emirates Global Aluminium in an aluminium refinery in Oklahoma.²²

There were also various joint ventures announced by private companies in areas such as nuclear technology, healthcare and quantum computing. This growing investment momentum has also been reflected in the tech space, where GCC investors have long been major players in Silicon Valley Venture Capital (VC) funding rounds, with older sovereign wealth funds like the Kuwaiti Investment Authority (KIA) and Abu Dhabi Investment Authority (ADIA) holding significant allocations in US equities.

However, there is still scope for additional targeted investments, particularly in areas of strategic interest. The US gas sector has been of particular interest, and Kuwait is reportedly considering buying a stake in the planned Louisiana LNG²³, while ADNOC has considered a US$9bn acquisition of Aethon Energy²⁴ and Aramco signed an offtake agreement for the planned Rio Grande LNG.²⁵

A growing focus on artificial intelligence

AI is a key focus area in the GCC, advancing rapidly because of strong leadership and the availability of capital, electricity and land, as discussed in our September 2024 report.²⁶ Partnership with the US has been central to this because of the US’s technological lead in AI chips, large language models and the broader AI ecosystem.

Even before President Trump’s current term, there had already been considerable GCC partnerships with, and investment in, US AI companies.  However, progress has accelerated this year, supported by the president’s  policies and prioritisation of AI.

The Dubai-based DAMAC Group announced a planned investment of at least $20 billion to build new data centres in the U.S, aiming to deliver best-in-class infrastructure to support the next wave of cloud and AI expansion, ²⁷ while Abu Dhabi Developmental Holding Company (ADQ) has committed to investing into energy infrastructure to power those centres.²⁸

The president’s delegation included the CEOs of major AI companies, including OpenAI, xAI and NVIDIA.  It provided opportunities to deepen relationships with GCC counterparts. In the UAE, reports emerged of G42 developing a vast 5GW AI data centre, which would be the largest in the world, to utilise millions of US AI chips. Meanwhile, Saudi Arabia launched its own national AI champion, HUMAIN, which also announced plans for significant chip purchases and partnerships with US tech firms.²⁹ While many of these initiatives are still in early stages, AI is fast becoming the third major pillar of U.S. exports to the GCC, alongside aerospace and defence.

Trump may not boost competition from US hydrocarbons

The US president’s energy policy has shown contradictions. He has wanted to keep fuel prices low, but not low enough to undermine his goal of expanding US oil and gas production. Notably, during the brief breakdown of OPEC+ in April 2020, he successfully urged Saudi Arabia to revive cuts because low prices were hurting US oil companies.³⁰

Trump’s policies seemed likely to significantly boost Liquid Natural Gas (LNG) production, an area where US producers compete with those in Qatar, Oman and the UAE. Trump has rolled back environmental and permitting restrictions and is urging countries to buy more US LNG as a way of reducing its trade deficits with them, just as he did during the 2020 China trade deal.

However, the recent tariff announcements have complicated this. China halted US LNG imports in March, and there are indications that other countries are also looking beyond the US, particularly towards the GCC, to ensure security of supply.³¹ The China National Offshore Oil Corporation agreed a term deal to buy liquefied natural gas from Abu Dhabi National Oil Corp (ADNOC) in April,³², and QatarEnergy is negotiating a long-term LNG supply agreement with a consortium of Japanese companies, including JERA and Mitsui & Co, which had previously resisted Qatar’s standard terms.³³

Trump organisation expands its interests in the GCC

President Trump’s company has had a presence in the GCC for over a decade, most notably through its partnership with DAMAC to develop a luxury golf course in Dubai, UAE.

Recently, it partnered with Saudi developer, Dar Global, which licenses the Trump brand. Last summer, they jointly announced plans for a ‘Trump Tower’ in Jeddah, Saudi Arabia, and a golf course and residential community in Muscat, Oman. Since the US election, more projects have been added: a tower and golf community in Riyadh, Saudi Arabia, a golf course and beachside community near Doha, Qatar, with state-owned developer Qatari Diar as a partner, and further UAE developments with a tower and hotel in Dubai announced.

Abu Dhabi’s semi-sovereign fund MGX also announced that it had transacted a US$2 billion investment in Binance - the world’s largest cryptocurrency exchange - using “USD1”, a stablecoin issued by World Liberty Financial, a digital currency firm majority-owned by the Trump family.³⁴

A rising power on the global stage

Trump has contributed to the fragmentation of the American-led global order, but this shift goes beyond him. The rise of China and India and strategic differences between the US and Europe have made the political and economic landscape more complex.

In this context, GCC states are playing an increasingly important role as rising powers on the global stage, as a result of their central geographic location, energy and financial power. Their relationship with the US remains important, particularly in the technology, financial and defence sectors, and they combine this with wider global relationships, individually and as a bloc. Moreover, regional governments are likely to engage in the global trade agenda more proactively. This is evident in visits by leaders, regional summits and trade and investment agreements.

References

_{[12] x.com The White House, 2 April 2025 - Liberation Day Reciprocal Tariffs
[13] Manufacturingdive.com, 10 April 2025 ‘PTFE, other chemicals spared from Trump’s tariffs’
[14] Greatproductsinc.com, 4 March 2025’ Products affected by section 232 tariff derivatives annex 1 list (by hts code)’
[15] Arabian Gulf Business Insight, 27 January 2025 ‘China renewables look to Middle East to avoid Trump tariffs’
[16] IMF, 22 April 2025 ‘World Economic Outlook April 2025’
[17] CNN Business, 7 May 2025 ‘Fed holds rates steady, warns of stagflation risks’
[18] The White House Government fact sheets May 2025 President Donald J Trump secures historic 600-billion investment commitment in Saudi Arabia
[19] The White House Government fact sheets May 2025 President Donald J Trump secures historic 1. 2 trillion economic commitments in Qatar
[20] The White House Government fact sheets May 2025 President Donald J Trump secures 200 billion in new UAE deals and accelerates previously committed 1.4 trillion UAE investment
[21] Bloomberg, 13 May 2025 ‘Aramco touts 3.4 billion US refinery plan during Trump visit’
[22] EGA.com, 16 May 2025 ‘EGA progresses plans to build first new primary aluminium production plant in the US since 1980, in Oklahoma’
[23] Reuters, 28 April 2025, ‘Woodside talks sell Louisiana LNG stake Kuwait Petroleum unit’
[24] Bloomberg, 11 April 2025 ‘Abu Dhabi’s ADNOC said to weigh bid for 9 billion Aethon assets
[25] Reuters, 8 April 2025 ‘NextDecade signs 20 year deal with Aramco supply LNG Rio Grande facility’
[26] https://www.pwc.com/m1/en/publications/middle-east-economy-watch/september-2024/gcc-plays-leading-role-in-ai-revolution.html
[27] Datacenterfrontier.com ‘Turning of the tides an analysis of recent US presidential support for data centers and digital infrastructure’
[28] The National News.com 21 March 2025 ‘Adq US energy renewable’
[29] Bloomberg, 13 May 2025 ‘NVIDIA to send chips to Saudi’s HUMAIN for ai data centers’
[30] Reuters, 30 April 2020 ‘Special Report: Trump told Saudi cut oil supply or lose US military support’
[31] Cleantechnica.com 18 April 2025 ‘China walks away US LNG expansion plans unravel as trade war escalates
[32] Reuters, 21 April 2025 ‘China’s CNOOC agrees LNG deal with UAE’s ADNOC amid tariff war with US’
[33] Reuters, 1 May 2025 ‘Qatarenergy talks with Japan long term LNG supply deal’
[34] Coindesk.com 25 March 2025 ‘Trump backed world Liberty financial confirms dollar stablecoin plans with Bitgo’}