Indirect but significant tariff impact

2025-04-25

Qatar has a healthy fiscal and trading position. Its primary export, liquefied natural gas (LNG) is mostly exported to Asia and Europe. As such, it is not directly affected in a major way by the increased import tariffs imposed by the regime of President Donald Trump – certainly compared with a manufacturing-based economy such as Vietnam. The Gulf nations face the standard 10% tariff, and have good relations with the US. They are not significant importers of US products.

Yet such is the scale of the US economy and the relative increase in tariffs – even after the announcement of recent pauses and exemptions, the average tariff rate is over 20% - all economies will feel some effects. Oil and LNG are the dominant export earners in the region, and are currently exempt from US tariffs – however the negative impact shock of the on-off tariff regime has dented global trade, and its prospects, sending the oil price lower. By mid-April it is running at around $65 per barrel (Brent Crude), down from around $80 at the start of the year.

This remains above the estimated break-even price for the state of Qatar of $60 per barrel. According to Fitch the ratings agency, however, Qatar, which now has an investment grade rating of AA, has healthy reserves, low debt-to-GDP (below 50% compared to a high of 85% in 2020), and sufficient assets to withstand all but a prolonged period of low oil prices.

Fitch noted Qatar’s high sovereign net foreign assets, an exceptionally high ratio of GDP per capita and a flexible public finance structure. It forecasts Qatar’s general government budget surplus at about 3.9% of GDP in 2025, including estimated investment income from Qatar Investment Authority (QIA) external assets, and about 0.9% without. 

Elsewhere among Gulf Cooperation Council (GCC) members, only Bahrain, with a break-even price at above $100 per barrel and higher debt, would appear to be vulnerable. Saudi Arabia’s break-even price is over $90, but it's wealthy with scope to reduce capital expenditure. The region has made some progress in non-oil economic development, for example in renewables and tourism.

Stock markets in the GCC countries fell sharply in early April but then recovered, in line with other exchanges.

The Gulf nations have currencies that are pegged to the dollar, but it is uncertain whether the protectionist regime will force the currency downwards. The Trump regime does want a lower value of the dollar to help exports, which would also help GCC exports, but if tariffs force inflation upwards, then the Federal Reserve may raise interest rates, forcing the dollar rate up.

Separately, President Trump has rolled back support for renewable energy, which could boost demand for oil and gas.

Looking further ahead, the longer-term impact of higher US import tariffs is difficult to project with certainty, not least because of frequent policy changes and the possibility of US and China, the two largest economies, ultimately agreeing a trade deal. 

The consequences of substantive economic decisions invariably feature unexpected outcomes. The US is the largest economy, and the largest consumer market, but Washington cannot dictate all flows of trade, and President Trump does not hold all the cards. China is a major source of rare earth metals, which are essential for manufacture of hi-tech products, including in defence. This leverage may make a deal more likely and it may not be wholly favorable to the USA.

Global trade routes may become altered. Already the European Union, for example, is in talks with China with regards to easing trade arrangements between the two blocs. Between them, they account for a greater share of global GDP than the USA (in 2024 the share of GDP was around 26% for the USA and around 17% each for the EU and China). 

The EU may reduce tariffs on Chinese imports to encourage trade. For example, it has set high tariffs, at 45.3%, on imports of electric vehicles from China but has begun discussions with a view to replacing tariffs with a minimum-price arrangement. The EU is likely to be cautious in any such negotiations, as it fears a surge of low-price Chinese imports, but there is likely to be scope for agreeing tariffs that are lower, if not zero. 

One of China’s responses to the fluctuating tariff regime of the US is to position itself as a more stable and reliable trading partner than the USA. An increase in trade between China and non-US economies could prevent a global recession and prevent oil prices from falling to sustained low levels, but the current level of policy-making uncertainty is high. President Trump is due to visit Gulf states in mid-May. It will be interesting to follow the outcome.