These changes have already triggered a 6% drop² in the S&P 500, are expected to reduce global trade by 0.8-1.3% in 2025-26, and have caused a 5% decline in the US dollar³, coupled with a forecasted 2% rise in the US Consumer Price Index⁴.

As a result, management decision-making has become increasingly complex. Companies across sectors and regions must incorporate tariffs and associated uncertainties into their strategic planning and operating models, including exploring trade alternatives and rebalancing supply chains.

General implications for the GCC: Disruptions and market shifts

GCC nations, such as the UAE and Saudi Arabia, fall into “moderate-tariff risk” category⁵, facing 10% tariff. In contrast, other regional countries like Jordan, Syria, and Iraq will encounter higher rates of 20-40%. While this lower immediate exposure seems advantageous, the GCC’s integration into global supply chains makes it susceptible to indirect effects, including trade rerouting and price distortions.

1. Impact on imports: Balancing low-cost opportunities amid rising competition from China
With Asian economies facing US tariffs exceeding 30%, excess supply will be redirected to other markets including the GCC. This influx of low-cost imports may lower input costs and enhance competitiveness for GCC, however, it will also intensify competition with local manufacturers, especially in chemicals, metals, and industrial goods, leading to margin compression and posing challenges to the GCC’s localization efforts.

2. Impact on exports: Tariff-driven demand pressures and downward energy prices
The 10% tariffs on GCC goods are expected to dampen US demand, compelling GCC suppliers to seek alternative markets impacting revenues in the short-term. Additionally, a tariff-induced slowdown in global industrial activity could put downward demand pressure on hydrocarbons and oil prices.

These structural disruptions and disproportionate tariff pressures on China and adjoining states is creating space for emerging connector states like India, Brazil, Mexico and select GCC countries to emerge as new trade hubs.

Potential impact on the GCC chemical industry and mitigation actions

The GCC chemical sector is particularly sensitive to the new tariff regime, as producers are already grappling with challenges from China’s expanding capacity, resulting in declining revenues and sharply reduced margins. Below are potential implications and suggested mitigations:

1. Competition from cheaper Chinese and American chemical products in other markets
With higher tariffs on Chinese chemical products and potential counter-tariffs, China (contributing to ~45% of global chemical production⁶) and US may divert excess supply to alternative markets like India, Southeast Asia, Africa. GCC companies risk margin erosion as they face competition from surplus lower-priced Chinese and US chemicals entering global markets.

GCC could target less saturated markets and employ tactical pricing strategies to protect market share. In the short term, they will need to streamline manpower costs and invest in technologies to enhance production efficiency as a medium-term solution.

2. GCC’s dependence on China as an export market
China and other Asian countries are the largest importers of GCC chemicals, accounting for ~50% of total exports⁷. If China reduces its GCC import reliance by repurposing its excess supply for domestic consumption, GCC could lose a crucial demand source.

To reduce export dependence on China, GCC could strengthen trade partnerships in high-growth markets like Southeast Asia, India and Africa. The GCC-Asia trade corridor has seen 15%⁸ growth (e.g., trade with India surging ~40% in 2022⁹). A practical mid‑term strategy could involve establishing G2G agreements between KSA, UAE, or Qatar and India to share low-cost feedstock, facilitate technology transfer and explore co-investments.

3. Weakened demand from slowing global economic growth
The chemical sector is closely tied to global economic cycles, and the US-China trade war is projected to dampen industrial growth. As demand for automotive, electronics and construction materials slows, the need for downstream chemicals in plastics, coatings, and advanced materials will decline. Consequently, GCC chemical producers may struggle to sustain volume growth without lowering prices.

GCC producers could adjust production to focus on high-demand, resilient segments and optimize inventory and pricing to manage near-term volatility. Long-term, they could integrate and move down the value chain (into specialty and conversion chemicals) to reduce exposure to price competition.

Strategic opportunities for the GCC chemical industry

Historically, similar global events like US-China tariff war in 2018-19¹⁰ and Chinese steel anti-dumping tariffs from Australia¹¹ demonstrate that while tariff disruptions can create short-term trade imbalances it also unlocks long-term opportunities through proactive supply chain realignments:

1. Expand GCC’s export market share in the US
With US tariffs driving up production cost for domestic and China-imported chemical products, GCC producers can capitalize on this shift to gain market share in US (currently represents only ~7% of their chemical exports^{7, 12}). However, success will require navigating complex trade regulations, securing long-term contracts and adapting to shifting demand trends. This opportunity maybe short-lived, as rising trade imbalance could prompt US to reassess import tariffs on GCC chemicals, warranting close monitoring and strategy adjustments.

2. Localize cost-effective chemicals supply chains in GCC
As China faces trade barriers, many global manufacturers will seek for alternative supply hubs. The GCC can position themselves as key player in this supply chain realignment by attracting foreign investment in localized production, leveraging its low-cost feedstocks and strategic trade access to Europe and Asia, making it an attractive alternative for global companies reassessing their risk exposure.

3. Leverage imports from low-cost tariff affected supplier geographies
China’s high tariffs will pressure it to sell surplus supplies at lower prices. GCC companies can seize the tariff arbitrage opportunity by importing these discounted feedstocks for local use and by positioning the region as a trading hub that re‑exports to higher‑tariff markets.

4. Accelerate diversification to high-value specialty chemicals
With potential price declines from China (due to excess supplies), GCC producers may accelerate their transition from commodity chemicals to high-value specialty chemicals, biodegradable plastics and high-performance polymers – products with strong growth and less competition (the global specialty chemicals market of $1.4 trillion accounts for ~31% of chemical industry revenue¹³). By moving down the value chain, GCC companies can be more inert to price competition and differentiate themselves from China’s low-cost production.

In today’s shifting trade landscape, the GCC chemical sector must transition from reactive measures to a more long-term strategic approach. While tariff disruptions pose short-term challenges, they also unlock opportunities for market diversification, localizing supply chains and cost-efficient sourcing. The ability to adapt quickly, strengthen global partnerships and investments in value-added capabilities will define the region’s future competitiveness.

References:

1. Executive order on reciprocal tariffs from Whitehouse (2 April)
2. BBC US stock market analysis, available at
3. Forbes analysis on US currency fluctuations
4. CNN analysis on inflationary pressures to consumers
5. LSEG insights on tariff classifications to global economies
6. ITIF publication on chemical industry trends in China
7. GPCA publication: Facts & Figures 2024
8. CNBC insights on impact of global trade war in the Middle East
9. Zawya’s newsletter insights on India-GCC bilateral trade agreements
10. S&P Global 2018 analysis on global trade wars and implications for refined products and chemicals
11. Reuters analysis on anti-dumping tariffs imposed by Australia on Chinese steel
12. Kearney insights publication on global chemical sector
13. GPCA publication: Unlocking the potential of a specialty chemicals industry in the GCC