Global Trade Shifts: Time for Pakistan to Recalibrate

The global trade landscape is undergoing profound changes, much of it triggered by policies introduced during Donald Trump’s presidency. His pivot towards unilateralism, aggressive renegotiation of trade pacts, and tariff measures marked a decisive break from the multilateral, liberal trade order that defined previous decades. For countries like Pakistan long reliant on open international markets, especially access to the U.S. this shift is a strategic wake-up call.

This trade shock is not just about the U.S.; it’s a broader signal for Pakistan to rethink its internal trade structures, industrial capacity, exchange rate policies, and export dependencies. Sticking to outdated models risks leaving us behind in an increasingly protectionist global economy.

Understanding the Trade Shock: What Changed?

Under the “America First” doctrine, the U.S. imposed selective tariffs, ignited trade wars (especially with China), and pulled back from multilateral trade agreements like NAFTA and the Trans-Pacific Partnership. The focus shifted from global platforms like the WTO to bilateral deals.

For Pakistan, two immediate concerns arise:

• Our trade with the U.S. especially in textiles, leather, and sports goods is vital, even if smaller than China’s.
• The broader implications for global trade diplomacy go beyond today’s tariff battles.

Trump’s tariffs disrupted global value chains, disproportionately affecting developing countries. Not because they were direct targets, but because their exports often lacked resilience or alternative markets to absorb such shocks.

Pakistan’s Trade Dependence and Exchange Rate Challenges

Like China, Pakistan maintains active trade ties with the U.S. However, the similarities end there. Pakistan’s trade profile remains narrow, concentrated mainly in low-value, labour-intensive sectors, with little diversification into technology or services. In contrast, China’s export strategy is dynamic, and policy driven. A critical, often overlooked issue is Pakistan’s exchange rate policy. Our managed float doesn’t always reflect true market competitiveness. Sharp currency depreciations might temporarily boost exports but often fuel inflation and disrupt trade agreements. What we need is a coordinated strategy where currency management supports long-term trade goals not just short-term fixes.

Limited Bargaining Power in Bilateral Trade

With the world moving from multilateralism to bilateralism, a tough question arises: What does Pakistan bring to the negotiating table? Countries succeed in bilateral deals when they offer strong sectors, scale, and consistent policies. Unfortunately, Pakistan falls short in all three areas. Our major exports, particularly textiles, are highly price-sensitive and easily replaceable. We lack bulk production capabilities and struggle to offer high-tech or value-added goods that would create mutual benefits in negotiations with major economies like the U.S.

Moreover, while Pakistan relies heavily on commodities facing global oversupply, the U.S. exports relatively inelastic goods like machinery and pharmaceuticals giving them greater leverage. This asymmetry places Pakistan at a distinct disadvantage under Trump-style (and now mainstream) trade models.

The Need for Strategic Diversification and New Markets

As global dynamics evolve, Pakistan must ask: Are we targeting the right markets? China is already pivoting toward Europe and beyond, hedging against further U.S. friction. Pakistan should adopt a similar strategy. Markets like Italy, Turkey, South Africa, India, and Vietnam offer opportunities for non-traditional exports, regional corridors, and diversified supply chains. Vietnam is an inspiring example: through strategic trade agreements and proactive government support, it has transformed into a regional trade hub. Pakistan must invest in economic intelligence training commercial attachés, providing exporters with market research, logistical support, and trade financing to seize emerging opportunities.

Import Substitution and Industrial Reallocation

While expanding exports is critical, smart import substitution deserves renewed attention.
This doesn’t mean outdated protectionism but rather focusing on building domestic capacity in areas like intermediate goods and low-end electronics, where substitution is viable. Trump’s tariffs revealed how vulnerable over-reliance on imports can be. Pakistan’s narrow industrial base makes us particularly susceptible to global shocks. Strengthening domestic production would build resilience into our economy. We must also be strategic in future trade negotiations, carefully managing market access and defending our critical industries.

Non-Tariff Barriers and Policy Shortcomings

While tariffs grab headlines, non-tariff barriers (NTBs) like certification standards, customs procedures, and sanitary regulations are increasingly shaping trade dynamics. Pakistan’s exporters often struggle to meet these evolving standards, leading to rejected consignments and lost credibility. On the domestic front, a complex and burdensome tax system inflates production costs and discourages exporters. Rather than reacting piecemeal to external shocks, Pakistan must undertake comprehensive tax reform and align domestic policies with long-term competitiveness.

A Call for Institutional Reform and Future-Focused Strategy

Institutions like ACTMA may argue that Pakistan’s textile sector is resilient enough to weather tariff shocks. However, depending on a single sector is shortsighted. We cannot afford to delay reforms based on temporary relief or false optimism. Initiatives like Uraan Pakistan 2028 offer a good start for vision-building, but unless they are firmly grounded in real-world market dynamics and trade realities, they risk becoming hollow ambitions. The private sector must shift from a survival mindset to one focused on scaling, innovating, and exploring new markets. Meanwhile, policymakers must prioritize consistency, institutional strength, and evidence-based strategies over short-term optics.

Conclusion: The Urgency of Strategic Trade Realignment

Trump’s trade policies should be viewed not just as external disruptions but as internal wake-up calls. With only 0.3% of global trade, Pakistan’s margin for error is dangerously slim. We are already grappling with external account vulnerabilities and limited policy space. This is a pivotal moment. Pakistan must embrace structural reforms, build economic resilience, and reposition itself in a fast-changing world. The next decade will bring even greater disruptions. Failing to adapt now could close the window for recovery altogether. It’s time for Pakistan to move from complacency to competitiveness, reaction to reform, and dependency to strategic autonomy. Only then can we secure a meaningful place in a world where the rules of trade are being rewritten before our eyes.