Trump’s Trade Disruption and the Gulf’s Strategic Pivot 
 

The return of U.S. President Donald Trump has ushered in a new era of economic nationalism and transactional diplomacy, rattling global markets and destabilizing long-standing trade norms. Trump’s sweeping tariff measures—targeting China, the European Union, and key supply chains—have triggered a cascade of protectionist responses and injected fresh uncertainty into global commerce.  

For Gulf economies, particularly the United Arab Emirates (UAE) and Saudi Arabia, the repercussions are multifaceted.  

In the short term, intensified U.S.-China trade friction is distorting supply chains, elevating input costs, and spurring an anticipated drop in demand. This ripples into Gulf sectors including construction, automotive, and consumer goods—industries heavily reliant on imported components. At the same time, Trump’s fiscal expansion, initially reinforced by the U.S. Federal Reserve’s tightening stance, bolstered the U.S. dollar, not placing strain on Gulf currency pegs and increasing the cost of imports in consumption-heavy economies.  

However, recent signs of a weakening U.S. dollar, driven by market volatility and growing global uncertainty, are now introducing additional currency management challenges across the region. Capital market volatility—fueled by uncertainty over global growth—threatens to chill inward investment and strain liquidity. For hydrocarbon-export dependent economies, any prolonged decline in Chinese demand or investor risk-off sentiment could translate into revenue shortfalls and rising fiscal pressure.  

The energy sector, a critical anchor for Gulf economies, faces layered risks. Global oil demand could soften further amid weaker global growth, undermining price stability. Buoyed by Trump’s deregulation, U.S. shale competitiveness could pressure Organization for Petroleum Exporting Countries (OPEC+) production coordination. Additionally, any shift in global trade routes away from Gulf maritime chokepoints could impact regional transit revenues.  

However, rising Chinese and Indian energy needs, especially under long-term contracts, offer some insulation. Gulf national oil companies could need to recalibrate investment timelines and reprice long-term projects to preserve fiscal flexibility.  

In parallel, Gulf sovereign wealth funds are already recalibrating portfolios post-COVID and accelerating allocations toward Asia and the Global South—particularly in energy transition, agritech, and infrastructure. While this diversification offers a strategic upside, it introduces new currency and political risks. Additionally, if U.S. yields spike or access to Western capital narrows due to heightened geopolitical risk premiums, Gulf states could face higher borrowing costs. This raises questions about debt sustainability for fiscally constrained governments, including Bahrain, Oman, and Saudi Arabia.  

Yet, this turbulence could catalyze strategic opportunity. Gulf governments are intensifying bilateralism with blocs of countries such as the BRICS+ (whose membership has grown from Brazil, Russia, India, China, and South Africa to also include Egypt, Ethiopia, Iran, and the UAE), the Association of Southeast Asian Nations (ASEAN), and African markets, as well as deepening regional integration within the Gulf Cooperation Council. Energy investments are increasingly tied to industrial policy via hydrogen hubs, petrochemical clusters, and green mobility corridors. Financial diplomacy is also evolving, with greater interest in yuan-denominated energy trades and alternative reserve frameworks.  

Trump’s second term, far from being a passing disruption, is likely to act as a structural inflection point. For Gulf economies, the response must be proactive: diversifying alliances, localizing value chains, and asserting greater strategic autonomy in a world where the rules are rapidly being rewritten. 

Trump Tariffs Have Stirred Momentum for Change in Canada 
 

The second Donald Trump administration’s tariff policy could prove especially severe in Canada, where economic integration with the United States has deepened over the past thirty years under successive free trade agreements. This integration has benefited both countries and strengthened the North American economy. The debate within Canada is particularly consequential as U.S. tariffs have been accompanied by threats of annexation. In effect, the tariffs are viewed as a threat to Canada’s sovereignty as well as its economic prosperity. 

It is not surprising, therefore, that two significant responses in Canada’s trade policy have already garnered broad support across regional and political lines.  

The first is trade diversification. The realization that the Trump administration cannot be counted on as a stable, reliable trade and strategic partner has shown that Canada needs to broaden and deepen its trade relationships with other countries. It is not coincidental that Prime Minister Mark Carney chose to visit Paris and London immediately upon being sworn in mid-March. Although largely a symbolic gesture, his visit to Europe signalled the intensity of Ottawa’s displeasure and Canada’s resolve to explore trade options. Importantly, trade diversification has become accepted by a wide swath of Canadians and most of the major political parties. 

The second proposed policy response to U.S. tariffs is a call for internal free trade. The Canadian economic federation has long been saddled with various barriers to interprovincial free trade, such as laws limiting the ability of professionals and tradespeople to practice in a jurisdiction other than the one in which they are licensed. Other impediments reflect government contracting local content rules and regulations that limit competition. Such restraints entail significant inefficiencies and, like proposals for trade diversification, there is a near-universal agreement on the need to reduce those barriers. 

The broad support for both policy responses mirrors overwhelming rejection of the Trump administration’s overtures with respect to Canadian sovereignty. And while there are formidable obstacles to achieving trade diversification and internal free trade, the perceived risks facing Canada provide a powerful unifying motivation. In this respect, Trump’s threats to annex could jeopardize the gains from trade from three decades of economic integration and have the unintended consequence of weakening the North American economy to the detriment of both countries. 

View From China: Trump Tariffs Risk Global Economic Upheaval—and Conflict  
 

U.S. President Donald Trump’s reciprocal tariffs have unleashed upheaval in global and regional economies. These trade policies are driven by a misguided view of the interdependence between the United States and global markets, and ignore historical lessons from the Smoot-Hawley Tariff Act of 1930, which deepened the Great Depression by choking trade and sparking retaliatory tariffs. These current policies risk similar consequences.   

The high tariffs are disrupting intricate international supply chains, inflating costs, reducing efficiency, and isolating the U.S. economy from vital global markets. This protectionism stifles world trade and investment, and erodes economic cooperation as nations retaliate and seek alternative partners. Beyond trade, the tariffs heighten tensions and fuel geopolitical rivalries, with the potential to escalate regional conflicts and wars. China has responded robustly to Trump’s reciprocal tariffs, aiming to protect its economic interests and assert its right to development while championing the rules-based international trade order. Viewing the tariffs as trade bullying, China emphasizes open trade, investment, and cooperation to foster stability and certainty in global markets. By maintaining a commitment to multilateralism, China seeks to counter the disruption caused by U.S. protectionism, which threatens global supply chains and economic growth.   

To effectively address this challenge, collective action is essential. China urges global consensus on free trade among World Trade Organization (WTO) and UN members to prevent widespread economic suffering from trade disruptions. China urges a stronger WTO role and advocates for reforms to address these new challenges. It also seeks to align with regional trade partners such as Japan, Korea, and ASEAN to deepen regional free trade agreements, stabilize supply chains, cushion economic disruptions, and foster resilience against global trade upheaval. Pragmatic approaches, such as dialogue and targeted negotiations, are critical to resolving frictions without escalating conflicts.   

As the world’s second-largest economy, China has opened its market to trade and investment to counter the impact of U.S. protectionism. To this end, China has lowered tariffs, expanded the free trade pilot zones, eased foreign investment restrictions in finance and manufacturing, and hosted the China International Import Expo to boost trade. Those efforts are meaningful in this challenging moment and work to benefit all countries.   

Mexico Struggles to Cope With Trump’s Contradictory Trade Policy 
 

Recent tariff measures implemented by the second Donald Trump administration against Mexico highlight significant inconsistencies in U.S. economic policy, adversely affecting both current and future regional competitiveness. These tariffs have been presented as negotiation leverage, revenue generators, and instruments intended to reshape trade flows to boost domestic manufacturing. However, those justifications cannot all be simultaneously true.  

The administration’s tariff policy relies on a misdiagnosis of the United States’ manufacturing challenges, which arise from transitions toward automation, services, and regional transnational production in the last forty years. Regional integration in manufacturing, over the same period, has enhanced the global competitiveness of U.S. manufacturers and lowered prices for U.S. consumers. Additionally, the United States has solidified its global leadership in financial services, technology, and intellectual property. 

For Mexico, a critical U.S. economic partner along with Canada, these measures represent a major setback. Approximately 50 percent of Mexican exports now face punitive 25 percent tariffs, significantly higher than the previous 3 percent. The United States-Mexico-Canada (USMCA) trade agreement protects compliant goods from tariffs. However, tariffs placed on non-U.S. content in automotive exports clearly violate its terms and erode trust among the signatories of this trilateral accord.   

These changes in trade policy by the Trump administration have extended beyond traditional economic issues into areas such as immigration policy, anti-narcotics cooperation, and water rights disputes. So far, Mexico has responded cautiously through negotiation rather than retaliation, which has earned Mexican President Claudia Sheinbaum recognition from President Trump, strong domestic support, and international commendation. However, the results of those negotiations have been mixed, partly due to the Trump administration’s shifting and expanding demands, as demonstrated by recent tariff threats concerning bilateral water rights. 

Mexico has responded to threats with proactive measures, such as improving compliance with USMCA to minimize tariffs, decreasing reliance on extra-regional inputs, and preparing for expected renegotiations. Mexican negotiators aim to remove automotive tariffs, eliminate tariffs on non-USMCA goods, address the complexities of shared dependencies with China, and remove nontariff barriers to U.S. businesses and investors in Mexico in sectors such as energy, pharmaceuticals, and agriculture. 

Yet Mexico’s predicament remains challenging. Alternative trade agreements with Brazil, the European Union, or regional blocs like the Pacific Alliance offer limited respite, as Mexico’s economy is fundamentally intertwined with North America. To safeguard shared prosperity, Mexico needs to advocate convincingly for deeper integration, emphasizing that U.S. competitiveness benefits from a robust North American partnership. A bolder strategy would be to assemble a coalition of U.S. states and businesses that share this view and propose comprehensive agreements on security cooperation, structured migration frameworks, and further economic integration. Ultimately, America First should not translate into “America Alone,” but rather into strengthened, cooperative ties with its closest neighbors.