The U.S.–China Trade War: Impact on Egypt and Strategic Legal & Economic Responses
Since 2018, the United States and China have been locked in a trade war characterized by reciprocal tariff escalations on hundreds of billions of dollars’ worth of goods. Initiated by the Trump administration, the aim was to address trade imbalances and concerns over intellectual property rights. China responded with counter-tariffs. This conflict disrupted global supply chains, slowed global economic growth, and produced ripple effects that reached far beyond the two superpowers including Egypt.
Trade War Background
The trade tensions officially began when the U.S. imposed tariffs on Chinese imports worth $50 billion. In response, China introduced tariffs on American goods. On September 24, 2018, the U.S. imposed additional 10% tariffs on $200 billion worth of Chinese products, which were later raised to 25% by May 2019. In January 2020, both nations signed the “Phase One” agreement. The U.S. relaxed some tariffs, while China committed to purchasing $200 billion in additional U.S. goods over two years a commitment that has yet to be fully honored.
Key Trade Commodities
U.S. exports to China: Soybeans, pharmaceuticals, and oil.
China’s exports to the U.S.: Smartphones (9% of all U.S. imports from China), electronics, batteries (crucial for Electrical Vehicles), and rare-earth minerals like germanium and gallium.
How It Affects the World
Together, the U.S. and China account for approximately 43% of the global economy (IMF, 2024). Any escalation in their trade dispute can:
- Suppress global investment,
- Trigger recessionary trends,
- Cause overproduction in China, leading to market flooding with underpriced goods (e.g., steel), which threatens producers elsewhere.
Impact on Egypt
Though not directly involved, Egypt has been significantly affected by the U.S.–China trade war:
- Economic Challenges:
- Supply Chain Disruptions: Global rerouting of manufacturing and logistics increased import/export costs for Egyptian businesses.
- Commodity Price Volatility: Egypt, as a net importer, faced increased bills due to price spikes in oil, food, and raw materials.
- Economic Opportunities:
- Diverted Investment: Chinese companies, seeking tariff-free alternatives, increased investment in Egypt, especially in zones like the Suez Canal Economic Zone.
- Export Expansion: As U.S.-China trade slowed, Egypt found new openings in the global market for textiles, chemicals, and agricultural goods.
- Currency & Inflation Pressure: Financial market volatility during the trade war led to capital outflows from emerging markets, including Egypt, pressuring the Egyptian pound (EGP). Rising global commodity prices contributed to domestic inflation, eroding purchasing power and requiring tighter monetary policy to maintain currency stability.
- Impact on Trade Balance:
- Exports: Some Egyptian exports found new markets as China and the U.S. scaled back bilateral trade.
- Imports: Tariff-driven increases in Chinese goods’ prices affected Egyptian firms that rely on electronics and machinery.
- Suez Canal Revenues: Initially, global shipping demand slowed, affecting Suez Canal income. Later, trade route diversions somewhat compensated for early losses.
- Strategic Regional Shifts: Egypt joined the BRICS bloc in 2024 (alongside Saudi Arabia and the UAE), signaling a desire to diversify trade and reduce dependency on Western-led systems. Egypt’s trade with BRICS countries now represents nearly 30% of its total volume a figure expected to grow.
Impacts on Egyptian Corporations
Beyond state-led responses, Egyptian corporations—particularly those operating in trade-sensitive sectors—have been directly impacted by the U.S.–China trade war. The ongoing disruptions in global trade flows since 2018 have necessitated operational, legal, and strategic shifts within the Egyptian private sector, with varying outcomes depending on industry, scale, and exposure to international markets.
- Import-Dependent Sectors and Supply Chain Disruptions: Egyptian firms involved in importing electronics, industrial machinery, medical equipment, and intermediate goods experienced substantial increases in procurement costs due to supply chain rerouting and rising prices on Chinese goods subject to U.S. tariffs. This was particularly acute for SMEs, which often lacked the liquidity or logistical capacity to rapidly shift to alternative suppliers.
- Legal Perspective: These adjustments often entailed renegotiating existing contracts, invoking force majeure or hardship clauses, and reevaluating trade terms under Incoterms 2020 and the United Nations Convention on Contracts for the International Sale of Goods (CISG).
- Export-Oriented Gains and Global Market Reallocation: Some Egyptian sectors have benefited from shifts in global trade patterns, particularly in agriculture, textiles, and fertilizers. With Chinese firms constrained by tariffs and supply chain delays, Egyptian exporters seized market share in regions like Europe, Africa, and the Middle East. For example, textile exports increased between 2020 and 2023, with growth attributed in part to new demand from buyers seeking non-Chinese alternatives.
Legal and Economic Solutions for Egypt
Legal and Regulatory Challenges
- Access to Foreign Currency and Central Bank Regulations: Egyptian importing firms may encounter challenges in securing sufficient foreign currency—particularly U.S. dollars—for import operations.
- Use of Letters of Credit (L/Cs): In 2022, the CBE introduced a requirement to use letters of credit for most imports, replacing other instruments such as documentary collection.
- Customs Clearance Procedures: Some businesses have experienced delays in the customs clearance process, attributable to factors such as procedural complexity, documentation requirements, and the gradual implementation of digital systems.
Legal Solutions:
- Trade Finance Flexibility and Risk-Based Approach: Consider restoring flexibility in the choice of trade finance instruments, allowing importers to opt between Letters of Credit, Standby LCs, or Documentary Collection.
- Expedited Dispute Resolution: Encourage the use of alternative dispute resolution (ADR) mechanisms, such as arbitration through the Cairo Regional Centre for International Commercial Arbitration (CRCICA).
- Compliance with International Trade Obligations: Ensure domestic customs procedures align with WTO-TFA commitments to enhance transparency, reduce costs, and foster a rules-based trade environment.
Economic Strategies
- Diversification of Trade Partners: Reducing over-reliance on a few major economies shields Egypt from external shocks.
- Export Competitiveness: Enhancing quality, branding, and logistics can boost global demand for Egyptian products.
- Special Economic Zones: Zones like Suez Canal Zone offer tax breaks and streamlined regulations, making Egypt an attractive hub for global manufacturing.
- African Market Integration: Egypt’s role in the African Continental Free Trade Area (AfCFTA) positions it as a regional trade gateway.
Egypt’s New Tax Reform: A Step Toward Transparency and Investment Growth
MP Mohamed Mostafa El Sallab, Chairman of the Industry Committee, praised President Abdel Fattah El-Sisi’s recent directives aimed at improving Egypt’s investment climate. He welcomed the replacement of multiple fees from various government entities with a unified surtax on net profits, describing it as a major shift toward a fairer and more transparent business environment.
Conclusion
The U.S.–China trade war has posed both challenges and opportunities for Egypt. On one hand, it increased inflationary pressures, complicated supply chains, and exposed currency vulnerabilities. On the other hand, it catalyzed increased FDI, offered a chance to diversify export markets, and repositioned Egypt as a regional economic player.
With sustained policy reform, international cooperation, and strategic alignment particularly through initiatives like BRICS and AfCFTA, Egypt is well-placed to navigate the shifting global trade order and enhance its resilience in an increasingly multipolar world.
