The United States remains one of Saudi Arabia’s top trading partners. As of Q4 2017, Saudi Arabia received the greatest value of its imports from the U.S. Other top partner countries for imports were China, the U.A.E., Germany, and Japan.
From 2016 to 2017, the U.S. moved from a trade surplus to a trade deficit with Saudi Arabia. In 2016, total U.S. exports of goods to the Kingdom totaled $17.97 billion while total U.S. imports from the Kingdom totaled $16.92 billion. These figures amount to a U.S. goods surplus of approximately $1.05 billion. In 2017, the value of U.S. exports to Saudi Arabia was $16.92 billion while the value of U.S. imports from Saudi Arabia was $18.87 billion, amounting to a U.S. trade deficit of $2.61 billion.
Data for 2017 shows that in terms of value, the top five NAICS export categories were transportation equipment, machinery, computer and electronic products, chemicals, and fabricated metals. In 2017, the U.S. exported over $7 billion worth of various transportation equipment to the Kingdom, accounting for 43 percent of all U.S. exports to the Kingdom. Trends for the top export categories – transportation equipment, machinery, computers/electronics, chemicals, and fabricated metal products – are shown below for the years 2014-2017.
Oil and gas products are the United States’ main imports from Saudi Arabia. The U.S. imported over $17 billion worth of these products from the Kingdom during 2017. Import levels have declined on an annual basis from 2014, decreasing by 61 percent between 2014 and 2017.
The United States as an oil exporter
As of February 2018, the U.S. oil rig count was 799 compared with 602 rigs one year earlier, and U.S. rig counts have continued to rise on a weekly basis for the past 5 weeks. The U.S. Energy Information Administration expects that oil production will average 10.04 million bpd in Q1 2018, the highest level since November 1970. Rigs are an indicator of increases in future production.
Data shows that as of early 2018, the U.S. exported 1.4 million barrels per day of crude, on average – an increase of approximately 600,000 barrels per day from one year ago. The U.S. EIA recently reported that the U.S. is on track to become a net energy exporter by 2022, moving up its forecast by four years.
Prior to 2016, U.S. crude exports to China did not exist, yet these exports have accelerated over the past year. By January 2018, these exports hit a record 400,000 barrels per day, totaling nearly $1 billion. The current constraint on U.S. crude exports are infrastructure-based; U.S. ports cannot handle the largest kind of oil tankers (known as Very Large Crude Carriers). The Louisiana Offshore Oil Port Services is now expanding to accommodate these vessels.
The share of crude exports from Saudi are decreasing
According to Riyadh’s Joint Organization Data Initiative, crude accounts for less of Saudi’s overall total exports through time, accounting for, on average 82 percent of total exports from Saudi Arabia in Q4, 2017. Indeed, this data supports Saudi Arabian progress towards diversifying away from crude exports.
In support of this diversification trend, the Baker Hughes rig count data for January 2018 showed that for the first time in seven years, Saudi Arabia has more gas rigs than it does oil rigs.
Non-oil merchandise exports
Exports of non-oil merchandise from Saudi Arabia have continued to increase in recent years. As of late 2017, the total exports in this category increased by 18.2 percent y-o-y. The annual export growth was primarily driven by increasing exports of chemical products, plastics and rubber, base metals, and machinery. Export growth from non-oil merchandise was limited by annual declines in categories including paper as well as prepared food and tobacco.
The top countries for non-oil exports from the Kingdom were the U.A.E., China, Singapore, India, and Belgium.
General trade environment
The broader U.S. trade environment will be an area to watch given President Donald Trump’s statements to move towards an ‘America First’ trade policy. Actions from the U.S. administration point towards increases in trade barriers in order to promote American manufacturing. U.S. tariffs were placed on foreign solar cells and washing machines. Economists suggest that these tariffs, while initially directed at Asian manufacturers, would also impact European, Mexican, and Canadian trading partners. The tariffs have garnered praise from U.S. companies operating in these segments, however, some economists have warned of potential trade wars and new costs to consumers.
The Commerce Department has indicated possible tariffs on imports of aluminum and steel. Secretary Wilbur Ross has proposed the idea of a 24 percent global tariff on steel shipments coming into the U.S. and a 7.7 percent duty on aluminum imports. Some economists have the view that these tariffs would drive up the prices for raw materials and in turn could negatively affect U.S. manufacturing industries.
Strength of the U.S. dollar
The strength of the U.S. dollar and volatility against the world’s other major currencies will be a factor to watch surrounding trade. Over the past year, the dollar has fallen by nearly 10 percent against the major currencies on a trade-weighted basis.
In late January, Treasury Secretary Steven Mnuchin made comments noting that a weak dollar would be good for U.S. trade and that he was not concerned with the dollar’s relative weakness in early 2018. Investors are expected to closely watch this trend because if there is a weaker dollar, import prices will rise, thus raising the CPI, and allowing the Fed to raise interest rates at a faster rate. Certain sectors may benefit from this environment. For instance, in an environment of rising interest rates, the financial services sector would be expected to perform well.