US withdrawal from globalisation presents opportunity amid uncertainty
Major economic and trade agreements were made across multiple sectors during President XI Zinging’s three-day trip to the UAE last week. The deepening partnership between the two countries is expected to add to a predicted $58bn in non-oil trade this year.
The UAE is seeking to strengthen its positions as a regional hub for trade and investment, while China has its ambitious $1tr Belt and Road Initiative (BRI) that seeks to expand its transportation and energy infrastructure around the world.
Crucially, the growing ties come as US President Donald Trump continues his shift to focussing on domestic priorities, as well as ripping up free trade agreements. This shifting alignment amounts to what HSBC labelled in its Trade Navigator report earlier this year as a ‘New Global Trade Order’.
The report urged companies to evaluate how they can maximise benefits from trade initiatives, including BRI, given the UAE’s strong existing ties – and free trade agreements – with economies in China, the European Union and beyond.
“There has been a definite shift away from the old world view of globalisation. This has slowed down and there is now more focus on intra-regional business,” Kyle Boag, regional head of International Subsidiary Banking at HSBC MENAT tells Arabian Business.
“The new global trade order is about the breaking down of the old order and we don’t know what that means exactly, though China is expanding and having a greater influence across the world while the US withdraws and focuses on its own industries.”
World Bank data shows that the UAE is a crucial meeting point for two-way trade worth $570bn with Asia, Europe, Africa and the rest of the World.
The HSBC report, published in April, found that 77 percent of UAE businesses responding to the survey expect trade volumes to grow over the coming 12 months and almost two thirds of respondents (62 percent) expect to see a jump in services trade, with China forecast to be a top three import and export partner for firms in the UAE between now and 2030.
HSBC UAE CEO Abdulfattah Sharaf said of these findings: “The UAE is home to the world’s busiest port outside of Asia and a key connection point for China’s Belt and Road Initiative, which is vital as investment flows from China through the UAE to the rest of the world accelerate,”
While there are many competing nations who wish to take advantage of China’s ‘new silk road’ Boag said the UAE is in the strongest position to benefit in the Middle East thanks to its geographic location and its head start on its competitors across multiple areas.
“The BRI is a very ambitious plan that covers a huge part of the world. And the UAE’s position as a hub for the Middle East, with its financing capabilities, professional services, along with multi-national and local companies that are capable of running large infrastructure projects, makes this a huge opportunity for businesses in the region,” said Boarg.
“There are many things the UAE has done to make itself more attractive and it continues to look forward, with initiatives like 3D printing, the Hyperloop, the government’s use of blockchain. It’s all about being at the forefront of development, and this is important because the UAE has become a good place to test new technologies – and to a large number of nationalities.
“The UAE is a gateway to Africa, the Middle East and Europe. If you are a Chinese company I don’t think you can think of a better place to set up an office to explore these new markets.”
While the focus on China’s BRI is seen as being heavy infrastructure, Boag said there are opportunities in multiple sectors. “It’s also about the Chinese subsidiaries that we are seeing come into the market. There are more Chinese banks coming here, along with tourism, transport and logistics which are all growing sectors.
“You also have the trickledown effect to the second and third tier contractors and the supply chain that feeds into it. It’s a very valuable opportunity for the whole ecosystem to develop. BRI is not just about bridges and highways.”
Of course, every country in the region offers potential in becoming a hub for trade in the region. Saudi Arabia is the biggest economy and market. Oman has an even better geographic location – especially for ports. But according to Boag, the UAE has a combination of factors that, taken together, make it unique.
“All these other countries have to attract businesses away from the UAE. In other parts of the world you would do that through offering a low-tax environment, but the UAE already offers this benefit. So there’s not a lot else they can do to attract businesses.”
And looking ahead to potential risks associated with this new global order – Trump’s potential tariff war being high on that list – Boag says that companies are prepared for dealing with uncertainty.
“We don’t know what will happen, but businesses here are used to dealing with ambiguity and are adaptable to whatever happens. We’re in a wait and see phase at the moment.”