U.S. Exports: Way Down

Demand for American products in the Middle East—in recent years virtually the U.S.'s only export growth market—has fallen off sharply over the past year. This trend is likely to continue, as political tensions are added to such problems as a strong dollar and export controls, including the anti-boycott law, which already are inhibiting U.S. trade.

During the first 10 months of 1983, according to the U.S. Commerce Department, U.S. merchandise exports to the Arab countries of the Near East and North Africa were worth $13.6 billion. This is more than 10 percent less than the $15.2 billion figure recorded in the same period of 1982. Such a decline is in contrast to the healthy 5 percent or so a year increase which U.S. exports have enjoyed in the Middle East market during the boom years since 1973.

Much of the reason for this dramatic downturn is related to the decline in the purchasing power of the Gulf oil producing countries, due to the reduction in income from their crude oil caused by slackening demand and lower prices. For example, U.S. crude oil imports from Saudi Arabia, whose value fell by half between 1981 and 1982, amounted to $2.7 billion in the first 10 months of this year, compared with $6.7 billion in the same period of 1982. It is because of these much lower imports that the U.S. has a positive trade balance with the Middle East for the first time since 1973, despite the decline in its exports to the area. As of October of this year, the U.S. trade surplus with the Arab countries was running at a level of $6.6 billion. (In 1981, it had an $11.5 billion trade deficit with the same countries.)

Despite the positive balance, the negative growth rate of U.S. exports to the Middle East is the cause of much concern among officials—since during recent years such exports have been a bright spot in the bleak picture of global trade. Now, the Gulf states in particular, because of the downturn in the oil market, have been forced to revise their spending and development priorities, and many projects which have involved or could have attracted U.S. contractors have been put on hold or stretched out.

Saudi Arabia has consistently accounted for two-thirds of the value of U.S. exports to the Arab world, and still does, even though it has fallen from first to sixth place as a source of U.S. oil imports. But it can only be interpreted as a danger signal that U.S. firms—500 of which maintain a full-time presence in the Kingdom—have witnessed a $643 million drop in the value of their sales to the country between the first ten month periods of 1982 and 1983. For the first time, Japan has overtaken the U.S. as Saudi Arabia's main supplier.

The trend is similar in the other oil-surplus Arab countries. U.S. exports to Kuwait, Qatar and the United Arab Emirates were off by 25 percent in the same period. Exports to Algeria, which has greatly increased its crude-oil exports to the U.S. (coming to within half a billion dollars or so of the Saudi level), were off 22 percent. Despite the fact that the U.S. has made a major effort to develop Algeria as a potential billion-dollar-a-year market, the figure for 1983 will be closer to half a billion.

One of the U.S.'s few growth markets (at a nominal 3 percent) in the region is Egypt, which is an exception because its purchases are largely backed by the enormous U.S. aid program, with some $2.5 billion in the pipeline.

As these trends continue, many observers say it is likely that in places like Kuwait, the U.A.E. and possibly even Saudi Arabia, a subtle pattern may emerge whereby contracts are awarded to non-American firms simply out of protest at U.S. government policies in the Middle East. Even in the far-flung and divided Arab world, it is impossible to imagine that there will not be some business fallout as a result of U.S. actions against Syria in Lebanon and because of the U.S.-Israeli agreements on military and strategic cooperation. It is also difficult to see how the turmoil in which the U.S. is now actively engaged cannot help but have a negative effect on the business climate.

Some observers have predicted a crackdown by the Arab Boycott office in Damascus on U.S. firms accused of doing business with Israel. This would coincide with the U.S. government anti-boycott compliance office's current intensification of fines against American companies charged with cooperating with the Arab boycott (See The Washington Report of October 3,1983). Another ominous indicator was Saudi Arabia's notification to Whittaker Corporation of California that it intended to put out to public bidding the multi-billion-dollar contract under which Whittaker has been managing a number of government hospitals in the Kingdom.