Overview - the Middle East and Trump’s Trade War
Liberation Day and the immediate aftermath
From the calm of the Rose Garden at the White House this week, on April 2nd 2025, President Donald Trump sprung his two-tiered tariff system into action. Aimed at promoting the America first agenda by addressing perceived foreign trade imbalances, Executive Order 14257 has been nothing short of divisive. The policy, as launched, operates on two principals - a baseline tariff of 10% imposed on most countries, and reciprocal tariffs, calculated based on trade deficits with specific countries.
Among those significantly impacted is Israel, which now finds itself confronting a challenging economic reality, despite its historically close diplomatic ties with the United States. Prime Minister Benjamin Netanyahu—who was notably the first foreign leader to visit President Trump at the onset of his second term and again following the president’s “Liberation Day” address—was unable to secure exemptions or concessions during his most recent visit to Washington. Following Trump’s backtracking on his policy as of July 8th 2025, a 17% tariff has been levied on all Israeli exports to the United States. Netanyahu’s diplomatic efforts to reduce tariffs have made no progress in mitigating the trade tensions, highlighting the challenges facing even traditionally close allies under Trump’s current economic agenda. Netanyahu announced plans to end tariffs on American export goods but received no reciprocal offer from the U.S. President, instead he was seemingly blindsided by Trump’s announcement of direct negotiations with Iran commencing on Saturday. Iranian Minister of Foreign Affairs, Sayyid Abbas Araghchi subsequently confirmed on X that the negotiations would be indirect, conducted by intermediaries in Oman, and would be “as much an opportunity as it is a test.”
President Trump, in justifying the decision, remarked, “We give Israel billions of dollars a year. Billions. It’s one of the highest of anyone,” suggesting that the administration views existing U.S. military aid as offsetting the need for preferential trade terms. As an aside, the press conference was somewhat overshadowed by President Trump’s announcement regarding direct negotiations with Iran; some analysts have interpreted the announcement as a press management tactic – simply there were too many questions regarding tariffs and Trump wanted to move the conversation, and headlines, to something else. However it raised eyebrows that such an announcement would be with Netanyahu at his side, and led to questions regarding the alignment off Israel and the United States on the Iran strategy.
As of writing, following a scare in the bonds market of a 2008-style meltdown Trump has, with the exception of China who saw a rise from 104% to 125% following their own retaliatory tariffs, reverted all tariffs, including the Israeli, to the 10% baseline; which we will discuss below.
The economic challenges now faced by Israel do not seem to be shared in the Middle East more generally, Gulf Cooperation Council (GCC) states like Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait, and Oman are all largely exempt from higher tariffs, perhaps due to the low VAT rates which are hospitable to foreign investment and sustain trade flows as well as the U.S.’ ongoing trade surpluses with them. While the GCC states may have avoided penalising direct tariffs, the broader consequences, namely heightened stock market volatility and growing uncertainty surrounding global trade, are likely to influence future bilateral negotiations. Turkey offers a salient example of the indirect ramifications of the Executive Order. Although subjected only to the baseline 10% tariff, this measure poses disproportionate challenges due to the strategic importance of steel exports in the Turkish economy, equating to $14.9 billion in export value in 2023, according to Turkey’s Steel Exporters’ Association. Given that steel manufacturing remains a politically sensitive sector in the United States—particularly within regions central to President Trump’s electoral base—Turkey is poised to experience economic repercussions that extend well beyond the nominal tariff rate. The confluence of strategic U.S. domestic interests and targeted trade measures demonstrates the asymmetrical impact of the policy on countries whose key export sectors overlap with politically significant American industries.
Countries such as Syria and Iraq faced significantly higher tariffs, with rates of 41% and 39% respectively. These elevated tariffs were part of the U.S. administration's broader strategy to address trade imbalances and were not specifically targeted at these nations. The substantial tariffs imposed on these countries' exports to the U.S. have led to concerns about reduced competitiveness in the American market. This situation has prompted discussions about seeking alternative markets and adjusting trade strategies to mitigate the impact, such as redirecting trade routes through low tariff countries such as GCC states or establishing new trade routes.
It appears that, despite the longstanding diplomatic ties between the United States and Israel, as well as the personal relationship between President Trump and Prime Minister Netanyahu, these factors did not significantly influence Trump's economic agenda with regard to Israel. Instead, it was the potential threat of a global economic downturn that ultimately compelled Trump to reconsider and postpone his proposed economic policies. Other Middle Eastern nations have experienced more mixed outcomes, with GCC states largely avoiding punitive tariffs while countries like Turkey, Syria, and Iraq will face significant economic pressure from heightened tariff rates. These developments reflect the uneven impact of the tariff system and disproportionate challenges due to the strategic and political weight of U.S. domestic interests. As global markets remain volatile, the ripple effects of Trump's economic policies are likely to influence future diplomatic and trade relations, further complicating the already complex international trade dynamics.