US and China trade war: Less Suez Canal traffic, more Chinese products for Egypt?

If there is a slowdown in international trade, it could lead to lower revenues(Photo courtesy of Axelspace Corporation via Wikimedia Commons)

Amid speculations of a trade war that could potentially break out between China and the United States (US) and may surpass the mere imposition of tariffs, uncertainty lingers regarding the impact of such a war on global trade and the global economy – and other countries.

The question remains: What would a trade war between the two mega economies really mean for Egypt and the Middle East?

Implications of a trade war on Egypt
From a global perspective, vice president of US-based public policy think tank Information Technology and Innovation Foundation Stephen Ezell tells Business Forward that if a trade war truly breaks out between China and the US, the trade flow between the two countries would lessen, which goes out across the Pacific Ocean already.

Looking at Egypt and the region, CEO of Egypt-based think tank Global Trade Matters (GTM) Ashraf Naguib believes that the impact of the trade war on Egypt will be “minute” – an opinion seconded by associate professor of practice at the AUC School of Business Ahmed El-Safty.

So what will happen?

A possible hike of Chinese investments in Egypt
Naguib explains that there has been an influx of Chinese investments coming to Egypt, which is what the country needs at this point; it is not the trade as much as investments and Chinese companies in the country.

Since 2013, China has been working on its One Belt/One Road initiative, also known as Belt and Road Initiative (BRI), which focuses on connectivity and cooperation between Eurasian countries through massive investment in and development of trade routes in the region.

Egypt wants to be a part of One Belt/One Road plan to increase cooperation with Asian countries including Kazakhstan and Tajikistan; hence, Egypt is very comfortable in its space with China, Naguib says.

China would also likely further double down on its One Belt/One Road initiative, so China might become even more interested in building ports and infrastructure throughout the Middle East. Ezell would certainly foresee increased Chinese interest in investment across the region, if that’s the case.

El-Safty expects that China will try to reduce the impact of the trade war by trying to gain an edge in new countries by working on creating demands and markets in other countries – including Egypt – and enhancing stronger economic relations. According to the associate professor, this is already happening.

What about the Suez Canal traffic; and hence, revenue?
“A trade war can lead to a slowdown in global trade; hence, a slowdown in the global economy. If there is a slowdown in international trade, it could lead to lower revenues from the Suez Canal and to a large degree Egypt is dependent on these revenues,” El-Safty says. However, he believes that this would happen in the case of a rather severe trade war.

However, if the US buys less from China, then more of their production would go elsewhere, which would probably relatively increase Chinese exports – and thus, trade flows like through the Suez Canal – going to the Middle East, Ezell explains.

What about Egypt, the US?
Naguib explains that the US-imposed tariffs apply on a wide variety of commodities that Egypt does not export. There is no gap that Egypt is going to fill and there is not a market that Egypt is going to lose, he emphasizes.

“Our exports to the US are defined under the Qualified Industrial Zones (QIZ) and General System of Preferences. They dictate the way that [Egypt] exports to the US,” Naguib points out.

On the other hand, Egypt has bilateral relations with China and the US. “We have a full-fledged strategic partnership with China. And by strategic, I mean that it surpasses economics and trade and politics, but also goes into security and culture,” Naguib emphasizes.

Looking at the Middle Eastern picture
Concerning the Middle East in general, he says that a trade war is not a good option for anyone, but there may be an indirect impact on the Middle East including that China might think about new markets and the potential in the African markets.

Ezell has a slightly different perspective on the story. “It should have less an effect on trade volumes flowing through the Middle East,” he highlights.

“For consumers in Middle Eastern markets, I think you will see some redirection of Chinese exports to those markets, which – if there’s more supply – might [bring with it] a slight reduction in prices for items like electronics and ICTs,” Ezell concludes.

 

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