New US Tariffs
The new proposed and implemented US tariffs may be classified in four categories:
Category 1: China
To be treated as a standalone bucket, given the US views on China as the primary trade adversary, in addition to claims around the flow of Chinese fentanyl into the US.
Category 2: Mexico and Canada
Tariffs and other trade measures are driven by national security concerns, such as immigration or illegal drug trafficking. There is a particular focus of the US Administration on these two main trading partners during the initial weeks of the new Government.
Category 3: Rest of the World
These can be further broken down as follows:
Investigation on America First Trade Policy (report expected by early April 2025). The investigation focuses on countries with which the United States has the largest trade deficits. Notably, none of the GCC countries are among the top 20, with the top 5 being China, Mexico, Vietnam, Ireland and Germany, based on January through December 2024 data.
Fair and Reciprocal Plan Investigation (report expected between April and August 2025).
Category 4: Sector Specific
By way of example, the 25% tariffs announced on aluminium and steel products, expected to start on March 12 (more on this below, given the impact on GCC exporters). Other sectors such as pharmaceuticals (potential 25%), automotive (potential 25%), semiconductors (potential 25%) etc. are also being scrutinized.
Other Trade Measures
In addition to tariffs, other trade measures are being used by the US Administration as a political lever. For example, export controls, and in particular, the AI Diffusion Framework currently being subject to public consultation, whereby the export of critical US AI chips will be subject to stringent export control requirements that will limit the ability of the rest of the world (except for a few selected countries) to freely acquire this critical technology.
Impact on GCC Exports
As a starting point, GCC businesses should monitor Categories 3 and 4, with those heavily engaged in or reliant on China, Mexico and Canada supply chains also monitoring Categories 1 and 2 developments.
The recently issued Memorandum titled “Reciprocal Trade and Tariffs” can help understand what might come next. Built on the premise that the US has one of the lowest tariff rates worldwide and that the US has been treated unfairly by its trading partners, the US administration has announced the introduction of a “Fair and Reciprocal Plan,” under which all trade-related arrangements with every foreign trading partner will be reviewed and revised. This review would include any practice that, in the US judgment, imposes any structural impediment to fair competition with the US market economy. The plan would consider losses resulting from measures that disadvantage the United States, regardless of their nature or whether they are written or unwritten. The examples given in recent public appearances of US representatives, including the President himself, suggest a potential adjustment (increase) of US tariffs to match those imposed by its trading partners on US goods.
The existing GCC Free Trade Agreements with the US (Oman and Bahrain) and more broadly, the US tariffs imposed on GCC goods may be reviewed as part of the above-mentioned plan. Given the current uncertainty around most of these potential measures, GCC businesses should plan for disruption, and they should do so immediately.
An example of the direct impact of these policies for GCC businesses is the recent announcement to increase the tariffs on all imports of aluminium articles and derivative aluminium articles from all countries to 25% (up from 10%) and reinstating the full 25% tariff on steel imports. Additionally, duty drawback will not be possible for these commodities. These tariffs shall take effect on March 12. This new tariff rate would supersede any preferential treatment provided under existing free trade agreements (FTAs) with the United States, including those currently in place with Bahrain and Oman.
According to the US Department of Commerce import data (March 2024 – February 2025), the United Arab Emirates (UAE) is the second-largest exporter of aluminium products to the US. Bahrain ranks fourth, while Oman and Qatar hold the tenth and twelfth positions, respectively. The GCC also plays a key role in steel exports to the US, with the UAE ranking as the twelfth-largest exporter of steel.
We will need to wait and see if the US will implement the aluminium and steel tariffs as planned on March 12 or whether they may be reviewed, postponed or even rescinded last minute, as it happened (initially) with the additional tariffs on Mexico and Canada.
Recommendations for GCC Businesses
The question that many GCC businesses are asking at the minute is: can I or should I do something with all this? The answer is yes, you must do something; and a critical first step includes validating your existing business model to assess whether it is still viable. Modelling is key and robust and reliable data even more.
Evaluate the Impact
Conduct a thorough analysis of how tariff increases affect your business models and sales. This may necessitate modifying manufacturing processes or diversifying sourcing options. Work with multiple scenarios and model different variables.
Implement Cost Management Policies
Examine contracts with overseas suppliers and export customers to determine whether increased tariff costs can be absorbed or passed on. Renegotiate contracts, pricing structures, and Incoterms where feasible to share or distribute cost increases.
Assess Customs and Trade Levers
Explore alternative valuation methods (in coordination with your transfer pricing policies), revisit your tariff classification with a focus on exclusions and exemptions, check if the duty drawback regime can still be used (where not excluded), keep an eye on whether Free Trade Agreements can still be leveraged and utilize Free Trade Zones to improve your cash flow.
Optimize Logistics and Transportation
Reevaluate your logistics and transportation strategies to minimize costs and delays. Consider reviewing your stockpile inventory policy to mitigate (partially) the potential impact.
Enhance Trade Compliance and Documentation
Ensure all import and export documentation is accurate and up to date to avoid delays and penalties. Stay compliant with the latest trade regulations and tariff classifications.
Monitor Trade Policy Developments
Keep a close watch on ongoing trade negotiations and policy changes that could impact your business.
Leverage Technology
Implement digital tools to enhance supply chain visibility, improve efficiency, and manage cross-border duties and taxes more effectively. If not done yet, it is probably a good moment to review your trade data management policy and ensure it is fit for what’s coming.
Key Takeaway
The wait-and-see position is no longer a sensible option for most GCC exporters, and now is the time to assess supply chain impacts and take proactive measures to navigate the shifting global trade landscape.
At PwC, we leverage our extensive expertise in customs and trade to help businesses manage the complexities of evolving trade regulations. Our dedicated team of trade professionals, in collaboration with our tax practice provide strategic insights and tailored solutions to assist companies in addressing these challenges effectively.
