By Arab News
By Frank Kane*
It is no longer appropriate to talk about an imminent, looming or possible trade war between China and the US.
As of last week, when the Chinese retaliated with tariffs on $60 billion of American goods — a response to US President Donald Trump’s plan for higher tariffs on $200 billion of Chinese imports — the global economic system is right in the thick of a trade conflict that looks only likely to escalate.
The Middle East, though not one of the principal protagonists in a conflict that will wreak damage on the global economy, is caught in the crossfire, and could yet become one of the main battlefields.
Whether or not the economies of the region end up on the winning side or not depends on the next decisions by policymakers in the Gulf.
In a sense, there are no winners in a trade war, despite Trump’s recent boast that his tariffs were “doing fine” and that the Chinese economy was beginning to hurt.
The broader Chinese export economy has still not suffered any real damage to its high growth rate, but the country’s stock market — for largely unrelated reasons — has shown big drops over recent months.
In contrast, the US has just declared the best quarter of economic growth in four years, and its own financial markets go from strength to strength, seemingly defying gravity and the growing levels of public debt in the US.
Long term, however, both countries will suffer from the reduced economic growth that a trade war will cause. The International Monetary Fund recently underlined the correlation between world trade and global GDP growth. The trade war could ultimately knock up to 2 percent of each country’s GDP growth.
The head-to-head between China and the USA- the world’s two biggest economies — is the battle that really matters. All the other theaters of war, including the hostility between America and the EU, recently put on hold for a while at least, are just sideshows to the war.
The Middle East is one such sideshow. The economies of Saudi Arabia, the UAE and other oil-exporting nations have no real commercial dog in the fight, as their principal export, crude oil, goes both east to the booming economies of east Asia and west to the slower-growing economies of Europe and the US.
But the oil-exporting countries do have one vital interest, the price of crude, that could easily become a weapon in the China-US battle.
That price, which has been climbing steadily back from the collapse of 2014, will be most obviously affected by the fall off in global economic growth that a trade war will cause.
It will also be susceptible to tactical maneuverings on the China-US battlefield. Last week, China’s largest refiner, Sinopec, said it would delay making purchases of American crude and LNG until it was clearer what level of tariffs Beijing would put in place on US imports in the immediate future.
Ominously, it was also reported that Beijing would not join in any global embargo of Iranian oil exports the US wants to impose from November. A more sensitive geopolitical situation, directly impacting the economic and strategic interests of the Arab oil-exporters, it is hard to imagine.
Trump is asking the world to stop buying Iranian oil, but the Chinese are threatening to instead stop buying US oil and making up the shortfall with Iranian imports. It is in the nature of a war that your enemy will ally itself with your other enemies, and that is what China appears to be threatening.
The other area where the Middle East has vital interests is the booming global petrochemicals sector. China has threatened to single out US petrochemical imports for special tariff treatment, and this is an area which increasingly dominates strategic industrial thinking in the Kingdom.
It would not be far-fetched to see Saudi Aramco and Saudi Basic Industries Corporation (Sabic) step into a breach created by the US-China trade conflict.
However the trade war pans out, and whoever declares themselves the victor, the process of “Easternization” — the tilt toward Asia as the power center of the global economy — is likely to continue.
One of the most influential analysts of the trend, Financial Times writer Gideon Rachman, recently wrote: “The weakening of western power is most obvious in the Middle East, where a political order (set up by US and European powers) is crumbling.”
It is hard to see how the US-China trade war can do anything except accelerate that trend.
*Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai
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