How Will Raging Trade War Impact UAE's Dh3tr Non-Oil Trade?

The UAE has successfully positioned itself as a global trade hub, with non-oil trade accounting for a substantial portion of its GDP. The Dh3.0 trillion figure reflects a robust growth trajectory, driven by increased exports and imports across various sectors, including electronics, machinery, and food products. However, the ongoing trade war, particularly between the US and China, is casting a shadow over this growth.

The Comprehensive Economic Partnership Agreements (Cepas) that the UAE has signed with various nations have contributed Dh135 billion to its non-oil trade with partner nations, an increase of 42 per cent compared to the previous year.

In 2021, the UAE set a goal of reaching Dh4.0 trillion in annual foreign trade by 2031. By the end of 2024, it had already achieved 75 per cent of that target, right on track to reach the target years ahead.

The UAE, the Arab world's second largest economy and the region's tourism and finance hub, has also invested heavily in trade and logistics infrastructure including modern marine ports and airport infrastructure to attract foreign investors.

“While the UAE's non-oil trade has shown impressive growth, the trade war has created an environment of uncertainty that could hinder future expansion. The interconnectedness of global supply chains means that disruptions in one part of the world can ripple through to the UAE,” says KV. Thomas, chairman of Dubai-based Thomsun Group.

He said with the US imposing tariffs and other trade restrictions, businesses in the UAE are increasingly feeling the pinch. Many companies rely on imports from affected countries, and rising costs may be passed on to consumers.“Higher tariffs on goods imported from China, for instance, could lead to increased prices for UAE businesses that source their materials from there,” he said.

Moreover, the UAE serves as a vital re-export hub for goods entering the region, particularly from Asia. If trade routes and relationships are strained, it could disrupt the flow of goods, impacting trade volumes.“The UAE's strategic location makes it a key player in global trade, but its success hinges on stable international relations," said Thomas.

Despite the challenges posed by the trade war, some experts believe there are opportunities for the UAE to enhance its non-oil trade. The country has the potential to attract businesses looking to relocate from regions affected by tariffs.“We may see companies looking to establish operations in the UAE to avoid tariffs on US-bound goods,” said Nazeer Veliyil, CEO of BRW Veliyil.“This could position the UAE as a strategic alternative for firms navigating the complexities of the trade war.”

Vijay Valecha, chief investment officer, Century Financial, said Trump's tariffs would not have any negative impact on UAE's non-oil trade; in fact, they could have a positive impact by increasing re-exports mainly due to UAE's strategic position in the logistics space.

“Located at the crossroads of Europe, Asia, and Africa, the UAE is strategically located and well-equipped with state-of-the-art infrastructure, making it an ideal hub for global trade and, especially, re-exports, and Trump's tariffs could increase re-exports. These companies could import goods from tariffed countries like China and re-export them back to the US. In the short term, a surge in export activity in the Middle East could also be expected as US companies start stockpiling,” said Valecha.

Analysts said the appreciation of the US dollar on the back of the raging trade war would lead to cheaper imports, but it would simultaneously undermine the competitiveness of local industries. This dual effect could worsen trade balances, particularly in economies already grappling with external pressures.

While the UAE has focused on diversifying its economy away from oil dependence, the trade war could undermine these efforts. The government has invested heavily in sectors like technology, renewable energy, and logistics, aiming to create a more resilient economic structure. However, any downturn in global demand due to trade tensions could affect these sectors.