When Donald Trump announced “Liberation Day” on April 2, exporters, traders, government officials, and heads of state scrambled to find their country on the president’s infamous cardboard chart to assess the damage.
Those from low- and middle-income countries in the Middle East—like Jordan, Iraq, Syria, and Tunisia—must have been particularly incensed with their tariff punishments. For the last two decades, the United States has bent over backward to support trade with these countries when they showed they were willing to support American priorities in the region—or sanctioned them when they didn’t. But these new tariffs appeared to be completely delinked from geopolitical considerations.
U.S. trade policy with lower- and middle-income countries in the Middle East has long represented an American approach to international relations in which economic and political objectives were intertwined. Investments in industry and free trade zones were supposed to nudge the region toward peace and stability based on economic interdependence. Crucially, these policies represented an economic vision that dovetailed with U.S. strategic interests in the region and fit with post-Cold War liberal sensibilities. But Trump’s new tariffs mean that the 1990s dream of peace and democracy through economic liberalization is dead.
Middle Eastern countries can take some comfort in knowing that it was never really working to transform their economies, anyway, much less bring about solutions to complex geopolitical problems. For countries like Jordan and Egypt, the tariffs could actually represent an opportunity to accelerate, on their own terms, a pivot that is already underway.
But for the United States, the trade war is nothing more than a self-inflicted wound to its own influence—with no replacement in sight. Washington can expect lower- and middle-income countries in the Middle East to drift further out of its orbit, and seek other solutions to their economic challenges.
Dreams of a New Middle East
In the 1990s, U.S. influence in the Middle East rose to an unprecedented level. Egypt and Jordan had been folded into a U.S.-led political project in the region, with the former supporting the coalition against Iraq during the Gulf War and the latter designated as a major non-NATO ally in 1996. The foundations were also laid for a comprehensive U.S. security umbrella in the Persian Gulf; the Fifth Fleet was reestablished and headquartered in Bahrain and construction began at the Al Udeid Air Base in Qatar, which hosts Centcom (U.S. Central Command). Even a recalcitrant Hafez al-Assad, then the president of Syria, was willing to engage in U.S.-backed negotiations after his country joined the U.S.-led coalition against Saddam Hussein in 1990. But what really grabbed the headlines were the peace negotiations between Israel, the Palestine Liberation Organization, and regional Arab states.
“The Middle East will unite in a common market—after we achieve peace,” Shimon Peres wrote in 1993.
The Oslo Accords were part of a broader vision of a “New Middle East,” built on the pillars of free trade and regional interdependence. Israeli prime minister Shimon Peres pioneered the vision in the early 1990s. “The Middle East will unite in a common market—after we achieve peace,” Peres wrote in his 1993 book The New Middle East. Palestinian negotiators were also bullish on the idea. Alongside the discussions in Oslo in 1993, a Palestinian industrial estate program was established by a trilateral economic committee headed by Palestinian chief negotiator Ahmed Qurei, U.S. Middle East envoy Dennis Ross, and Israeli chief negotiator Uri Savir. These sorts of proposals reflected the zeitgeist of peace and economic liberalization, finding favor among the Clinton and Bush administrations. “If you agree to establish industrial zones in the West Bank and Gaza and elsewhere,” Bill Clinton said to Middle Eastern leaders in 1995, “I am prepared to go to Congress and seek approval for extending duty-free treatment to products coming out of those zones.”
But the project of trade integration was not confined to the lands west of the Jordan River. After Jordan signed a peace agreement with Israel in 1994, U.S. officials created the Regional Business Council, which assembled business elites from Israel, the Palestinian territories, Jordan, and Egypt. Sponsored by the United States, Jordan became part of the Qualifying Industrial Zone (QIZ) program in the mid-1990s—exports from designated zones to the United States obtained duty-free status as long as the goods contained a certain Israeli input. And in 2004, the program was extended to Egypt. The decade also saw bilateral trade agreements signed between the United States and Bahrain, Jordan, Egypt, and Morocco—which the United States eventually hoped to piece together into a regional free trade agreement (FTA).
It was supposed to be the dawn of a new era, in which, as George W. Bush put it, “old patterns of conflict in the Middle East can be broken if all concerned will let go of the bitterness, hatred and violence, and get on with the serious work of economic development.”
Development through Exports
From the perspective of developing countries in the region, the ability to export products to the United States was clearly desirable, at least among certain policymakers and business interests. For small countries with limited domestic markets, an export-led strategy coupled with access to a large market can induce the accumulation of knowledge and skills, spurring sustained growth and structural transformation in the economy. After all, many East Asian states developed through this kind of export-led industrialization.
There is evidence to suggest that the programs in the Middle East boosted exports, bringing some relief to balance-of-payments issues, especially in Egypt and Jordan—though the effect of U.S. military and development aid was likely much more important. By 2003, the QIZs employed approximately 30,000 people, with a large proportion of the jobs going to women. In Egypt, the QIZ program that was implemented in 2004 helped revive its ailing garment industry. And in Morocco, after the U.S.–Morocco FTA entered into force in 2006, Moroccan exports to the United States increased considerably.
World Bank data show these trends in Jordan, Egypt, and Morocco. In all three cases, there was a significant increase in the total value of exports to the United States after the QIZ program was initiated in Egypt and Jordan, and after FTAs with the United States were implemented with Morocco and Jordan.
Figure 1
Neoliberal Fantasy Meets Reality
However, there is much that these data do not tell us. Did the dreams of a New Middle East really come to fruition? Despite being a common developmental strategy, an increase in exports tells us little about how income is distributed, how labor is treated, and whether local skills are upgraded.
In the case of Jordan, the garment industry that took off during this period was, and continues to be, largely dependent on inputs sourced from Asia and a few large U.S. fashion brands that purchase the bulk of its products. Since Jordan signed the FTA with the United States in 2001, the majority of the garment factories are part of larger transnational companies headquartered in East Asia seeking duty-free access to the U.S. market, which absorbs an inordinate proportion of Jordanian exports. Three-quarters of the labor isn’t even Jordanian—in fact, in some factories, a majority of workers are migrant women from South Asia.
Critics also suggest that the main beneficiaries of these programs were business elites and those close to the ruling regimes. FTAs may have negatively affected some local producers who could not compete with the influx of globally competitive imports, while those with political access tended to enjoy privilege and protection. In Jordan and Morocco, for example, after tariffs on imports were reduced, corporate and income taxation on certain sectors was also reduced to help certain local producers.
Free trade simply wasn’t an antidote to many underlying problems in the Middle East, chief among them cronyism. The gains from trade are generally accrued to countries where investment can move out of sectors that are not globally competitive, and into those that are. But cronies reduce the competitiveness and the dynamism of the economy, leading to low rates of investment and low economic growth, thereby nullifying any potential gains. The new economic policies helped concentrate political power even more in the Middle East—the opposite of what boosters claimed gradual liberalization would lead to.
Even if it weren’t for cronyism and other loopholes in the liberalization theory, the Middle East has a much more fundamental issue that has blocked off the export-to-development conveyor belt: decades of war, political instability, and regional fragmentation have left the region with few prospects of integrating into global economic production networks. Asian countries like South Korea that are the poster children for export-led development also once suffered from corruption, cronyism, and authoritarianism—but they have still managed to deeply integrate into a broader global economy.
Compare Jordan and Vietnam, countries with similar levels of GDP per capita. In 2023, Jordan received $74 per capita in foreign direct investment, whereas Vietnam received $183 per capita—more than twice as much. And while Jordan has an unemployment rate of roughly 21 percent, Vietnam’s unemployment rate is closer to 2 percent. Unlike Southeast Asia, the Middle East also had higher average wages at the start of its attempted transition and lacked a natural trade bloc, making it less attractive for foreign capital.
But whatever the causes, the upshot is clear: the region has struggled to fit into the global division of labor. From that perspective, the American tariffs simply push these Middle Eastern countries to make economic policy decisions that they probably should have considered some time ago.
What’s Being Lost
While the shortcomings of the 1990s vision for the Middle East had to be confronted, it would have been better to do so at a balanced pace with an alternate vision in place, rather than under duress, from the position of economic weakness (and, for some countries, crisis).
Caption: Workers at a Jordanian garment factory in a 2018 file photo. Source: Abdel Hameed Al Nasier/ILO, used with a Creative Commons license
What’s certain is that many Middle Eastern countries will now need to turn away from a declining United States and the same developmental strategies of the past. Will a country like Syria—its manufacturing sector decimated, still under U.S. sanctions, and threatened with a 41 percent tariff—really want to develop its economy through trade integration with the United States? Can Jordan—which is reeling from the exodus of USAID assistance and will likely have to renegotiate trade with Trump—keep depending on the United States as a reliable export market?
Instead, Middle Eastern countries will need to focus more intensively on creating jobs in domestic services, which will employ the most workers in the coming decades. These states can invest in technologies that complement workers in service sectors, rather than those that seek to simply replace or automate them. Moreover, since small domestic enterprises tend to employ the bulk of the population, increasing productivity among these firms can help pull them out of the informal sector and allow for more sustainable growth and more resource efficiency.
Middle Eastern states will also have to look to each other for help. For a region where trade integration has not noticeably improved since the 1970s, there is a lot to do. Growing middle classes can stimulate demand for goods and services that can be produced within the region. The green transition can also provide new opportunities for growth, but it will require large and costly investments that will most likely have to be financed by wealthier states.
In short, the region has a chance to make lemonade from Trump’s lemons, and embrace new strategies for development. But doing so will not be easy, and renewed disorder could torpedo progress.
For the United States, there’s no commensurate silver lining. Trade with these small Middle Eastern economies never mattered much for the United States in an economic sense. But American trade policy in the Middle East, flawed as it was in achieving its objectives, gave Washington a measure of influence that it has now sacrificed—in exchange, it would seem, for nothing.
HEADER IMAGE CAPTION: President Donald Trump holds up a chart while speaking during a “Make America Wealthy Again” trade announcement event in the Rose Garden at the White House on April 2, 2025. Source: Chip Somodevilla/Getty Images
Tags: economic oppurtunity, tariffs, middle east, global economy
Trump’s Tariffs End a Liberalization Dream in the Middle East—and Shrink American Influence
When Donald Trump announced “Liberation Day” on April 2, exporters, traders, government officials, and heads of state scrambled to find their country on the president’s infamous cardboard chart to assess the damage.
Those from low- and middle-income countries in the Middle East—like Jordan, Iraq, Syria, and Tunisia—must have been particularly incensed with their tariff punishments. For the last two decades, the United States has bent over backward to support trade with these countries when they showed they were willing to support American priorities in the region—or sanctioned them when they didn’t. But these new tariffs appeared to be completely delinked from geopolitical considerations.
U.S. trade policy with lower- and middle-income countries in the Middle East has long represented an American approach to international relations in which economic and political objectives were intertwined. Investments in industry and free trade zones were supposed to nudge the region toward peace and stability based on economic interdependence. Crucially, these policies represented an economic vision that dovetailed with U.S. strategic interests in the region and fit with post-Cold War liberal sensibilities. But Trump’s new tariffs mean that the 1990s dream of peace and democracy through economic liberalization is dead.
Middle Eastern countries can take some comfort in knowing that it was never really working to transform their economies, anyway, much less bring about solutions to complex geopolitical problems. For countries like Jordan and Egypt, the tariffs could actually represent an opportunity to accelerate, on their own terms, a pivot that is already underway.
But for the United States, the trade war is nothing more than a self-inflicted wound to its own influence—with no replacement in sight. Washington can expect lower- and middle-income countries in the Middle East to drift further out of its orbit, and seek other solutions to their economic challenges.
Dreams of a New Middle East
In the 1990s, U.S. influence in the Middle East rose to an unprecedented level. Egypt and Jordan had been folded into a U.S.-led political project in the region, with the former supporting the coalition against Iraq during the Gulf War and the latter designated as a major non-NATO ally in 1996. The foundations were also laid for a comprehensive U.S. security umbrella in the Persian Gulf; the Fifth Fleet was reestablished and headquartered in Bahrain and construction began at the Al Udeid Air Base in Qatar, which hosts Centcom (U.S. Central Command). Even a recalcitrant Hafez al-Assad, then the president of Syria, was willing to engage in U.S.-backed negotiations after his country joined the U.S.-led coalition against Saddam Hussein in 1990. But what really grabbed the headlines were the peace negotiations between Israel, the Palestine Liberation Organization, and regional Arab states.
The Oslo Accords were part of a broader vision of a “New Middle East,” built on the pillars of free trade and regional interdependence. Israeli prime minister Shimon Peres pioneered the vision in the early 1990s. “The Middle East will unite in a common market—after we achieve peace,” Peres wrote in his 1993 book The New Middle East. Palestinian negotiators were also bullish on the idea. Alongside the discussions in Oslo in 1993, a Palestinian industrial estate program was established by a trilateral economic committee headed by Palestinian chief negotiator Ahmed Qurei, U.S. Middle East envoy Dennis Ross, and Israeli chief negotiator Uri Savir. These sorts of proposals reflected the zeitgeist of peace and economic liberalization, finding favor among the Clinton and Bush administrations. “If you agree to establish industrial zones in the West Bank and Gaza and elsewhere,” Bill Clinton said to Middle Eastern leaders in 1995, “I am prepared to go to Congress and seek approval for extending duty-free treatment to products coming out of those zones.”
But the project of trade integration was not confined to the lands west of the Jordan River. After Jordan signed a peace agreement with Israel in 1994, U.S. officials created the Regional Business Council, which assembled business elites from Israel, the Palestinian territories, Jordan, and Egypt. Sponsored by the United States, Jordan became part of the Qualifying Industrial Zone (QIZ) program in the mid-1990s—exports from designated zones to the United States obtained duty-free status as long as the goods contained a certain Israeli input. And in 2004, the program was extended to Egypt. The decade also saw bilateral trade agreements signed between the United States and Bahrain, Jordan, Egypt, and Morocco—which the United States eventually hoped to piece together into a regional free trade agreement (FTA).
It was supposed to be the dawn of a new era, in which, as George W. Bush put it, “old patterns of conflict in the Middle East can be broken if all concerned will let go of the bitterness, hatred and violence, and get on with the serious work of economic development.”
Development through Exports
From the perspective of developing countries in the region, the ability to export products to the United States was clearly desirable, at least among certain policymakers and business interests. For small countries with limited domestic markets, an export-led strategy coupled with access to a large market can induce the accumulation of knowledge and skills, spurring sustained growth and structural transformation in the economy. After all, many East Asian states developed through this kind of export-led industrialization.
There is evidence to suggest that the programs in the Middle East boosted exports, bringing some relief to balance-of-payments issues, especially in Egypt and Jordan—though the effect of U.S. military and development aid was likely much more important. By 2003, the QIZs employed approximately 30,000 people, with a large proportion of the jobs going to women. In Egypt, the QIZ program that was implemented in 2004 helped revive its ailing garment industry. And in Morocco, after the U.S.–Morocco FTA entered into force in 2006, Moroccan exports to the United States increased considerably.
World Bank data show these trends in Jordan, Egypt, and Morocco. In all three cases, there was a significant increase in the total value of exports to the United States after the QIZ program was initiated in Egypt and Jordan, and after FTAs with the United States were implemented with Morocco and Jordan.
Figure 1
Neoliberal Fantasy Meets Reality
However, there is much that these data do not tell us. Did the dreams of a New Middle East really come to fruition? Despite being a common developmental strategy, an increase in exports tells us little about how income is distributed, how labor is treated, and whether local skills are upgraded.
In the case of Jordan, the garment industry that took off during this period was, and continues to be, largely dependent on inputs sourced from Asia and a few large U.S. fashion brands that purchase the bulk of its products. Since Jordan signed the FTA with the United States in 2001, the majority of the garment factories are part of larger transnational companies headquartered in East Asia seeking duty-free access to the U.S. market, which absorbs an inordinate proportion of Jordanian exports. Three-quarters of the labor isn’t even Jordanian—in fact, in some factories, a majority of workers are migrant women from South Asia.
Critics also suggest that the main beneficiaries of these programs were business elites and those close to the ruling regimes. FTAs may have negatively affected some local producers who could not compete with the influx of globally competitive imports, while those with political access tended to enjoy privilege and protection. In Jordan and Morocco, for example, after tariffs on imports were reduced, corporate and income taxation on certain sectors was also reduced to help certain local producers.
Free trade simply wasn’t an antidote to many underlying problems in the Middle East, chief among them cronyism. The gains from trade are generally accrued to countries where investment can move out of sectors that are not globally competitive, and into those that are. But cronies reduce the competitiveness and the dynamism of the economy, leading to low rates of investment and low economic growth, thereby nullifying any potential gains. The new economic policies helped concentrate political power even more in the Middle East—the opposite of what boosters claimed gradual liberalization would lead to.
Even if it weren’t for cronyism and other loopholes in the liberalization theory, the Middle East has a much more fundamental issue that has blocked off the export-to-development conveyor belt: decades of war, political instability, and regional fragmentation have left the region with few prospects of integrating into global economic production networks. Asian countries like South Korea that are the poster children for export-led development also once suffered from corruption, cronyism, and authoritarianism—but they have still managed to deeply integrate into a broader global economy.
Compare Jordan and Vietnam, countries with similar levels of GDP per capita. In 2023, Jordan received $74 per capita in foreign direct investment, whereas Vietnam received $183 per capita—more than twice as much. And while Jordan has an unemployment rate of roughly 21 percent, Vietnam’s unemployment rate is closer to 2 percent. Unlike Southeast Asia, the Middle East also had higher average wages at the start of its attempted transition and lacked a natural trade bloc, making it less attractive for foreign capital.
But whatever the causes, the upshot is clear: the region has struggled to fit into the global division of labor. From that perspective, the American tariffs simply push these Middle Eastern countries to make economic policy decisions that they probably should have considered some time ago.
What’s Being Lost
While the shortcomings of the 1990s vision for the Middle East had to be confronted, it would have been better to do so at a balanced pace with an alternate vision in place, rather than under duress, from the position of economic weakness (and, for some countries, crisis).
Caption: Workers at a Jordanian garment factory in a 2018 file photo. Source: Abdel Hameed Al Nasier/ILO, used with a Creative Commons license
What’s certain is that many Middle Eastern countries will now need to turn away from a declining United States and the same developmental strategies of the past. Will a country like Syria—its manufacturing sector decimated, still under U.S. sanctions, and threatened with a 41 percent tariff—really want to develop its economy through trade integration with the United States? Can Jordan—which is reeling from the exodus of USAID assistance and will likely have to renegotiate trade with Trump—keep depending on the United States as a reliable export market?
Instead, Middle Eastern countries will need to focus more intensively on creating jobs in domestic services, which will employ the most workers in the coming decades. These states can invest in technologies that complement workers in service sectors, rather than those that seek to simply replace or automate them. Moreover, since small domestic enterprises tend to employ the bulk of the population, increasing productivity among these firms can help pull them out of the informal sector and allow for more sustainable growth and more resource efficiency.
Middle Eastern states will also have to look to each other for help. For a region where trade integration has not noticeably improved since the 1970s, there is a lot to do. Growing middle classes can stimulate demand for goods and services that can be produced within the region. The green transition can also provide new opportunities for growth, but it will require large and costly investments that will most likely have to be financed by wealthier states.
In short, the region has a chance to make lemonade from Trump’s lemons, and embrace new strategies for development. But doing so will not be easy, and renewed disorder could torpedo progress.
For the United States, there’s no commensurate silver lining. Trade with these small Middle Eastern economies never mattered much for the United States in an economic sense. But American trade policy in the Middle East, flawed as it was in achieving its objectives, gave Washington a measure of influence that it has now sacrificed—in exchange, it would seem, for nothing.
HEADER IMAGE CAPTION: President Donald Trump holds up a chart while speaking during a “Make America Wealthy Again” trade announcement event in the Rose Garden at the White House on April 2, 2025. Source: Chip Somodevilla/Getty Images
Tags: economic oppurtunity, tariffs, middle east, global economy