On July 9, 2023, Iraq’s Prime Minister received a letter from US President Donald Trump regarding the trading relationship between Baghdad and Washington.
In his letter, President Trump indicated that Iraq’s trade with the United States lacked reciprocity, which led to a decision to impose a 30 percent tariff on Iraq’s exports to the US beginning August 1.
This newly announced tariff is lower than the initial 39 percent rate introduced during ‘Liberation Day’ in April, but it supersedes the temporary 10 percent rate that was enacted for 90 days to facilitate negotiations which expired in July.
However, it is crucial to note that Iraqi oil exports, which constitute a significant portion of Iraq’s trade balance, are exempt from these tariffs.
As a consequence, the first, second, and now the new tariff rates have no direct impact on the trade deficit calculation associated with oil.
Instead, the indirect effects stemming from declining oil prices—predicted to arise from reduced global oil demand due to trade tariffs—could affect Iraq’s overall economy.
This article aims to delve into the nature of the tariffs imposed on Iraq, recount the historical aspects of their trade relationship, and propose policy measures to create a mutually beneficial relationship between Iraq and the United States, especially within the context of the US-Iraq Strategic Framework Agreement, which underscores political, economic, cultural, and security ties.
**The Mechanics of the Tariffs**
Public records do not clarify how the Trump administration arrived at the 30 percent tariff rate imposed on Iraq, nor do they reveal Washington’s full analysis of how these tariffs are anticipated to impact the existing trade deficit.
Despite this lack of transparency, there is evidence from past announcements, specifically the initial 39 percent tariff, to shed light on how such rates were formulated.
On ‘Liberation Day’, the US Trade Representative (USTR) outlined a tariff calculation formula that incorporated numerous variables, effectively neutralizing many components.
The formula calculated the trade deficit from Iraq divided by the total imports from the country, yielding a reciprocal tariff that was set at 50 percent of that particular value, intended to reduce the trade imbalance.
Current estimates place the total trade volume between the United States and Iraq at roughly $8.8 billion for 2024.
Iraqi exports to the US are anticipated to hit $7.4 billion, dominated mostly by oil, while American exports to Iraq are projected at $1.4 billion, excluding $0.3 billion in re-exports through the US.
The majority of US products imported to Iraq comprise cars (39 percent), machinery (16 percent), pharmaceuticals (8 percent), electrical and electronic goods (8 percent), and medical apparatus (7 percent).
However, the statistics available do not encompass many US goods exported to Iraq via third countries, leading to ambiguities regarding the true nature of US trade with Iraq.
As the figures stand, the trade deficit between the two nations—before the tariffs take effect—sit at about $5.8 billion, which translates to a tariff and non-tariff barrier rate of 78 percent.
According to the Trump administration’s calculations, this subsequently indicates a reciprocal tariff rate of 39 percent.
**A Brief History of Iraq-US Trade**
In order to assess the trade relationship effectively, it is important to analyze the volume of Iraqi oil exports in barrels per day (bpd), rather than simply in monetary terms, which can be misleading due to fluctuating oil prices.
For instance, 200,000 bpd at $30 would yield $2.1 billion in revenue while the same amount at $60 would result in $4.2 billion, leading to skewed insights if analyzed based solely on monetary revenues.
From 2012 to 2024, US exports to Iraq have remained relatively consistent, averaging $1.4 billion annually; however, these figures showcase a decline from $2 billion in 2012 to $1.4 billion in 2024.
This decrease is not indicative of a downturn in Iraq-US relations or reduced demand for American products; rather, it reflects the evolving dynamics of Iraq’s economy as it transitions towards a more consumer-oriented model post-conflict.
Over this span, Iraq has increasingly turned to other nations, notably China, for consumer goods typically sought from the US and other Western markets.
The International Monetary Fund (IMF) has reported that Iraq maintains a low effective tariff rate, estimated at under 1 percent for 2023, which is significantly lower than regional averages, indicating minimal barriers to trade.
From 2012 to 2024, Iraq’s total oil exports surged by 39 percent, while concurrently, the country’s exports to the United States experienced a steep 64 percent decline.
This downturn can be attributed to two salient factors specific to the US: first, a modest increase in US oil consumption by 8 percent and a notable 23 percent decrease in oil imports, which correlates to the burgeoning shale oil industry in the US.
The shale oil boom has dramatically transformed the US’s role as an oil importer, resulting in a decrease from 49 percent imported oil consumption in 2012 to 35 percent in 2024.
**Policy Implications**
Despite the complexities surrounding the tariffs, the potential for an evolving bilateral relationship presents Iraq with a significant opportunity to bolster its economic collaboration with the United States.
President Trump’s indication that tariff rates are open to reassessment reflects a chance for Iraq to enhance its components of the US-Iraq Strategic Framework Agreement.
To leverage this potential, Iraq should focus on developing its economic energy partnership with Washington and simultaneously seek to achieve energy independence by reducing reliance on Iranian gas imports.
Strategically, this would require more than just specific trade agreements; it is essential for Iraq to cultivate a long-term energy partnership with US companies through a comprehensive mega-energy deal.
Such an arrangement could encapsulate multiple interrelated components and evolve over several years, potentially surpassing previous contracts like the $27 billion deal with TotalEnergies in mid-2023 or the $25 billion contract signed by BP in early 2025.
The proposed framework for this mega-deal would include four key components.
Firstly, it should address alternative gas imports to meet Iraq’s energy demands, sourcing Liquefied Natural Gas (LNG) from the US alongside current agreements for pipeline gas imports from Turkmenistan.
The establishment of a robust LNG infrastructure in Iraq becomes the second sub-component, necessitating significant investment and development efforts from US companies.
The third element involves increasing domestic gas production capabilities by capturing valuable flared gas using advanced technologies provided by US firms.
Finally, the fourth component would integrate the captured gas for electricity generation, targeting the critical electricity supply-demand gap within Iraq.
This comprehensive approach necessitates collaboration with US companies, particularly firms like GE Vernova, to modernize and enhance Iraq’s electricity grid infrastructure.
To ensure smooth operations and investments across all these dimensions, Iraq must address any tariff and non-tariff challenges that could pose obstacles, despite its current low effective tariff rate.
By establishing this expansive energy framework as a cornerstone of the US-Iraq Strategic Framework Agreement, Iraq can not only spearhead significant economic growth but also create new investment and trade avenues for US companies venturing into the evolving Iraqi market.
In conclusion, while the challenges posed by tariffs loom large, they also open the door for Iraq to foster a more intertwined economic relationship with the United States, promoting growth, stability, and shared opportunities for both nations as they navigate this complex landscape.
image source from：atlanticcouncil
