Middle East economies likely to indirectly benefit from US-China trade truce

13/05/2025 02:24 AST

The economies of the Middle East are expected to indirectly benefit from the US-China tariff truce announced on Monday, analysts say.

The US and China said on Monday they agreed to temporarily slash their steep tariffs on each other, sending global stocks and the US dollar surging as the world's top two economies tapped the brakes on a trade war that had fed fears of a global recession.

According to Reuters, the US will cut extra tariffs it imposed on Chinese imports last month from 145 per cent to 30 per cent for the next 90 days, the sides said, while Chinese duties on US imports will fall to 10 per cent from 125 per cent.

Financial markets cheered the reprieve in a conflict that had brought nearly $600 billion in two-way trade to a standstill, disrupting supply chains and triggering layoffs. Investors had also worried about stagflation, a toxic combination of high inflation and weak economic growth.

As an immediate impact of the US-China cooling of trade hostilities, the outlook for oil prices has improved provided the trade deal sticks, although fundamentals still suggest prices can't rally too much in 2025. Brent futures have added more than 3 per cent in response to the US-China announcement, trading close to $66 per barrel in morning trade. It later pared gains but was still trading above 2 per cent in the afternoon.

The bounce in oil prices will be welcome for regional fiscal and external balances for oil exporters but Emirates NBD still expects oil prices to drift lower this year as supply additions overwhelm demand growth. "We maintain our current expectation for oil prices unchanged," Edward Bell, Emirates NBD's acting group head of research and chief economist, said in a note.

An index tracking the dollar against other major currencies rose further from last month's three-year trough with an almost 1.1 per cent gain, while Japan's yen fell 2 per cent to 148.2 per dollar, according to Reuters data. "A stronger dollar and stronger pegged currencies, such as the UAE dirham or Saudi riyal, mean that any inflation sparked by more expensive imports from countries whose currencies have appreciated recently should be manageable," Bell said.

For the UAE, where trade occupies a significant position in the economy, an easing in global trade tensions is a positive as it can allow firms to deepen trading routes, making use of the country's logistics infrastructure and networks. "An alternative scenario where firms needed to establish new supply chains or reorient existing ones would still likely have taken advantage of the UAE's logistics offering but with some frictions as new relationships were established," Bell said.

The US is still carrying out trade negotiations with multiple trading partners ahead of the expiry of its 90-day pause on elevated tariff rates in early July. The US has managed an initial deal with the UK, though maintained a baseline 10 per cent tariff, and this suspension of the elevated China duties. "The establishment of a China-US trade negotiation mechanism should help to alleviate some uncertainty around the trajectory for future talks and the prospect of making the reduction in tariff rates permanent," Bell said.

Khaleej Times