Multinational businesses are re-evaluating their global supply chains, particularly in light of fluctuating tariff policies and geopolitical tensions. As the Trump administration reignites tariffs as an economic tool, the concept of “friendshoring” is gaining traction. This term refers to the practice of relocating production or final assembly to countries with favorable trade relations, an approach that companies are increasingly considering to mitigate risks associated with geopolitical instability and tariffs.
Historically, the term friendshoring may not have been prevalent, but the current landscape has made it a central element of corporate strategy. The Middle East, specifically the UAE and Saudi Arabia, is emerging as a notable option for final-stage manufacturing due to its low trade friction with the United States. This region not only offers an attractive environment for establishing manufacturing operations but also presents a more stable tariff landscape compared to traditional manufacturing hubs like Mexico or Southeast Asia.
In recent years, the US has reported a strong trade surplus with the UAE, amounting to approximately $19.5 billion in 2024. This contrasts sharply with countries that face persistent deficits and heightened tariff risks. Notably, Saudi Arabia has witnessed a significant shift in its trade balance, transitioning to a modest surplus after previously experiencing a deficit. Such dynamics create a more appealing climate for businesses seeking to protect themselves from punitive tariffs while positioning themselves to capitalise on emerging markets.
Economic reforms and investments in infrastructure throughout the Gulf region are prompting select companies to consider this area more seriously for manufacturing purposes. Saudi Arabia’s recent signing of nine investment agreements worth over $9.3 billion with multinational players like Vedanta and Zijin Group illustrates the kingdom’s commitment to fostering a robust supply chain ecosystem. This ambition aligns with the broader Vision 2030 initiative, aimed at diversifying the economy beyond oil dependency.
Gulf states are not merely resting on their laurels; they are actively working to enhance their supply chain roles by investing heavily in critical mineral extraction. Resources like lithium, cobalt, and rare earth elements are quickly becoming chokepoints in the global supply chain. Regional investments in these minerals further solidify the UAE and Saudi Arabia’s positions as emerging hubs that could appeal to companies grappling with US tariffs focused on China.
Companies searching for alternatives to Chinese-origin goods are turning to the Gulf states, which offer the added benefit of largely avoiding punitive US tariffs. However, this strategy hinges on meeting US customs definitions for “substantial transformation.” The assembly of a product from imported components may qualify, but merely repackaging an existing product would not suffice. This nuanced legal framework makes the choice of assembly location critical for firms aiming to navigate the complex tariff landscape.
Despite the potential advantages, challenges remain. Labour costs in the UAE and Saudi Arabia are considerably higher than in established manufacturing territories like Vietnam or Bangladesh. In response, both countries are investing in workforce development initiatives tailored to integrate skilled labour into their industrial frameworks. Saudi Arabia’s Human Capability Development Programme exemplifies this trend, aligning educational outcomes with industry requirements.
Reconfiguring supply chains is undeniably a long-term endeavour, demanding significant time and financial investment. Businesses today face a stark choice: absorb rising tariffs or strategically reposition their supply chains. Such decisions, potentially influenced by the shifting political winds in Washington, could reshape the global landscape for decades to come. While the complexities are substantial, a growing number of firms are beginning to examine the Middle East not simply as a supplementary region but as a critical pivot point in their operations. Thus, labels like “Designed in California, assembled in the Gulf” could soon become commonplace for American consumers.
In conclusion, the dual challenge of addressing escalating tariffs and adapting supply chain strategies presents firms with both obstacles and opportunities. As companies increasingly weigh their options in this fluid geopolitical landscape, the emerging role of the UAE and Saudi Arabia as friendshoring destinations marks a significant shift in the manufacturing paradigm, setting the stage for a redefined global trade ecosystem.
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Source: Noah Wire Services
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