The US-China Trade War will have implication in The Middle East

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SHAFAQNA: Beijing has ramped up engagement in the Middle East in recent years as Arab nations play an important role in Xi’s signature Belt and Road foreign policy plan. Based on this issue, trade war between two of the world’s largest economies,  US and China will definitely have implication in this region.

According to Forbes middle east, an effort to Stimulate an Under performing Economy less than a week ago, the US brought into effect 25% tariffs on Chinese exports worth $34 billion. Beijing responded by levying an equal amount on American exports to China, escalating a rift between the two countries over trade imbalances.

The Trump administration rattled the markets once again after it revealed that it would slap an additional 10% tariffs on goods worth $200 billion, sparking fears of a long drawn out trade war between two of the world’s largest economies.

Economists note that a trade war could eat away at the GDP of the two countries eventually, slowing growth over long term but not impacting much over the short term.

M.R. Raghu, managing director of Marmore MENA Intelligence, says that the trade war will definitely have implications in other markets.

“The prospect of other countries being pushed to take sides could broaden the scale of trade wars and the resultant spillover effects would be felt all over including the Middle East region,” he says.

The impact of trade wars would be most felt in the economic growth and immediately felt in the equity markets.

The former due to dampening of economic activity as demand for exports fall and the latter as increased risk aversion would lead to withdrawal of capital from risky assets.

“A trade war between the two largest economies in the world presents a significant threat to global economic growth and stability. A scenario where a trade war encourages other markets to begin adopting a protectionist stance may lead to less demand for some U.A.E exports which could negatively impact growth.

The uncertainty from such developments may fuel risk aversion, consequently impacting equity markets and local stocks in the Middle East.

The Trump-China trade war is a ‘plus’ to the region.

It’s a plus, because it turned China’s attention and interest to the Middle East the GCC, aiming to shift economic presence to the 5-star red flag from the US Stars and Stripes and become a main trading partner, AMEInfo.

Middle East nations will have at their disposal $20 billion in loans, and about $106 million in financial aid, to revive their economies.

The Middle East could also be affected indirectly if the trade war escalates. The region accounts for 40% of China’s oil imports and if industrial activity falls as a result of the trade wars, demand for oil exports from the MENA could fall, Raghu explains.

According to AMEInfo, China produces half of its oil and gas supply and imports the other half from the Middle East. Yet, the East Asian nation has always maintained a relative distance in its business dealings, avoiding the complications of politics and other sensitive issues their business partners are going through and instead opting to remain strictly professional.

China, which traditionally played little role in the Middle East conflicts or diplomacy, despite its reliance on the region for energy supplies, has been trying to get more involved in resolving long-standing disputes,Ewn.co.za.

“Development was key to resolving many security problems in the Middle East,” Xi told a gathering with representatives of 21 Arab nations in the Chinese capital, Reuters reports.

“We should treat each other frankly, not fear differences, not avoid problems, and have ample discussion on each aspect of foreign policy and development strategy,” he said.

Dr. Altay Atli, a lecturer at Koç University in Turkey, pointed out that China was solely focused on the economic aspects of the Middle East policy, however, things changed after 2011’s Arab Spring as China found itself isolated from the region in terms of economy, Turkish state-run Anadolu Agency reports.

China would offer aid worth $15 million to Palestine to support economic development, besides providing a further $91 million to Jordan, Lebanon, Syria, and Yemen, he added.

China-Middle East relations will kick off in full force in the coming years, in a fruitful relationship that will have wide-scope effects on the region’s place on the international stage.

The Belt and Road initiative was announced in 2013 by Chinese president Xi Jinping, a sort of new-age restoration of the ancient silk  road commerce route. The Route is a development project that will help connect China to the regions to its west, in Central Asia, the Middle East, and Europe.

According to the Belt and Road Action Plan released in 2015, the initiative will encompass land routes (the “Belt”) and maritime routes (the “Road”) with the goal of improving trade relationships in the region primarily through infrastructure investments.

With the Middle East factoring greatly in this project, the Chinese government cannot afford faltering infrastructure or political or economic unrest hindering their efforts. So, while their laissez-faire attitude has served their economic pursuits in the past, China will have to adopt a more cooperative and nurturing role in the region if it seeks to fulfill its ultimate goal.

The Chinese leader further said that China would like to form a strategic partnership with the Arab League to become “the keeper of peace and stability in the Middle East”.

China had suggested in the past a four-point program to resolve the Israeli-Palestinian conflict. Put fourth in 2013, it includes the establishment of a Palestinian state on the basis of 1967 lines, respect for Israel’s right to exist and security concerns, halting settlement activities and violence against civilians, and international guarantees to advance the peace process, M.jpost reported.

It is unsure how long the economic tension between the world’s two largest economies will last. But the longer it lasts, larger the impact will be on oil prices.

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