Egyptian Unrest Could Harm U.S. Trade Relations

Political instability in Egypt will negatively impact U.S. trade for the foreseeable future. Egypt has been one of our most stable trading partners in the Mideast and is currently the 34th largest export market for U.S. goods. The U.S. goods trade surplus with Egypt was $3.2 billion in 2009. U.S. goods exports in 2009 were $5.3 billion. Corresponding U.S. imports from Egypt were $2.1 billion. In an era of seemingly uncontrollable U.S. trade deficits with just about every country, Egypt has been a breath of fresh air. American products have historically been very popular with consumers in Egypt.

Any time the U.S. enjoys a trade surplus, that’s good news good news for job creation and job retention.

The biggest threat to the U.S. would be the closure of the Suez Canal, which is largely controlled by Egypt. Oil tankers unable to sail through the Suez Canal would have to be diverted around the southern tip of Africa. Shipping costs would skyrocket not only for oil but for any goods that are shipped through the Suez Canal. This would raise both U.S. export and import costs.

An unstable Egypt would hit U.S. agricultural exports to Egypt hard, especially in the export of poultry and grains. Tariff instability has always been a problem in Egypt, but instability would cause U.S. prices in Egypt to soar. For example, most key U.S. agricultural product exports to Egypt now enter at tariffs of 5 percent or lower; however, a number of processed food products face tariff rates ranging from 20 percent to 30 percent. In 2006, the tariff rate on poultry was reduced from 32 percent to zero percent, but in 2007, the government imposed a 30 percent tariff, which remains in place today. This could climb even higher if a new Egyptian government takes power.

As we have seen in the past with political upheavals, there is a flight of capital outside the country. As a result of shrinking revenue governments cut spending while increasing tariffs and other barriers to trade to choke off imports.

At one time, the U.S. and Egypt were pursuing a free trade agreement that would have eliminated most tariffs placed on U.S. goods flowing to Egypt. It would have been a boom for both our nations. It is now unlikely that such an agreement will be signed for a very long time. That’s bad news for the U.S. and bad news for Egypt. A stable Egypt is a better trade partner for the U.S.and for the world.

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