President Donald Trump’s recent tariff policy is grounded in a fundamental misunderstanding of international trade economics, specifically the erroneous belief that bilateral trade deficits inherently represent unfair exploitation.
Driven by this flawed logic, his administration has imposed sweeping tariffs designed to artificially rebalance trade relationships. Beginning with a universal 10 per cent tariff on nearly all imports, Trump’s strategy will escalate further on April 9, implementing targeted reciprocal tariffs against nations — both allies and adversaries — holding substantial bilateral surpluses with the US. This simplistic approach calculates tariff rates by taking the US bilateral trade deficit with a country, dividing it by total imports from that country, and then ‘generously’ halving the figure.
Pakistan, a critical example, has felt the direct consequences of this miscalculation. In 2024, the US trade deficit with Pakistan stood at roughly $3 billion, with US imports from Pakistan at $5.1 billion versus exports of $2.1 billion. Trump misleadingly justified imposing a hefty 29 per cent tariff on Pakistani goods, alleging Pakistan charged a disproportionate 58 per cent tariff on US goods — a wildly inaccurate figure derived solely from his own tariff methodology.
Trump’s tariff policies represent a sharp departure from over seven decades of US leadership in global economic liberalisation. Historically, the US championed open markets and multilateral trade frameworks, promoting the globalisation that shaped much of today’s global economy. However, Trump’s unilateral protectionism, first demonstrated by crippling the WTO’s appellate body during his first term as president and now by setting up aggressive tariff barriers, directly undermines the very institutions America once painstakingly built. By disabling the WTO’s dispute resolution capabilities, Trump is now — after leaving the international trading system without a referee — whimsically resolving his perceived trade conflicts.
These protectionist measures have had a global impact, disrupting supply chains that were carefully built over decades of integration. Trump’s first-term trade war against China prompted manufacturers worldwide to adopt a ‘China+1’ strategy, shifting production to lower-cost economies such as Vietnam, Thailand and Cambodia. Initially benefiting from redirected trade, these nations now face severe setbacks under Trump’s latest tariffs. For instance, Vietnam, which enjoyed significant investment inflows as companies like Apple and Nike expanded their production bases there, faces devastating new tariffs as high as 46 per cent, placing approximately 5.5 per cent of Vietnam’s GDP at risk. Likewise, tariffs on specialised products from the developed world, ranging from German machinery to Japanese autos, will disrupt mature supply chains and increase costs for US industries and consumers. The end result will be a less efficient global trading system with higher costs and uncertainty — a sharp reversal from the stable, rules-based flow of goods businesses had come to rely on.
For Pakistan too, Trump’s protectionist turn is worrisome. The US is one of Pakistan’s largest export markets, purchasing around $5 billion in Pakistani goods in 2024. While that accounts for a modest 0.16 per cent of total US imports, it represents a vital lifeline for Pakistan’s textiles, leather goods and surgical instruments, which dominate Pakistan’s export basket to the US.
Incidentally, Trump’s tariff broadside might open some short-term opportunities for Pakistan if it plays its cards right. Some of Pakistan’s fiercest competitors in textiles – Bangladesh, Vietnam, Sri Lanka, Cambodia – are hit with even higher US tariff rates. If those rivals stumble, Pakistani exporters could theoretically seize a larger share of the US market, provided they can meet quality and cost expectations despite the tariff. However, capitalising on this would require extraordinary resilience and adaptation, requiring Pakistani businesses to rapidly absorb increased costs, enhance productivity, and move higher up the value chain — an immensely challenging endeavour.
Trump’s protectionism has predictably prompted a robust global backlash. Allies and adversaries alike have quickly moved towards retaliatory measures. The European Union, for example, is preparing a comprehensive package of counter-tariffs, clearly signaling readiness for economic confrontation.
Similarly, China, already facing a cumulative tariff burden exceeding 60 per cent, has vowed vigorous countermeasures. Canada, Japan, South Korea and Taiwan — traditionally reserved allies reliant on US security commitments — have expressed deep concerns and hinted at proportional retaliations, increasing the risks of a global trade war.
Fortunately, the US’s share of global imports stands at approximately 15 per cent, offering other countries room to manoeuvre. Many nations are already recalibrating their trade strategies to mitigate US tariff impacts through enhanced multilateral cooperation without American involvement. Asian countries have reinforced economic integration via the Regional Comprehensive Economic Partnership (RCEP), a major trade agreement encompassing China, Asean and other regional economies, significantly lowering tariffs and harmonising trade rules.
Likewise, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), ratified by key US allies including Japan, Canada and Australia — without US participation — highlights a commitment to maintaining an open, rule-based trading order. Similarly, the European Union has expedited its free trade agreements globally, reinforcing trade ties with Japan, Mercosur, and Vietnam to ensure market stability and supply chain continuity amidst growing U.S. unpredictability. These moves indicate a strategic recalibration: even without the U.S., the world will try to uphold the multilateral trading system through new alliances.
Such efforts are essentially workarounds – they keep globalisation alive but also signal a world moving on and potentially fragmenting into trade blocs. For Pakistan, this realignment presents both challenges and opportunities: alternative markets may grow, but global trade could become more regionalised, and countries outside major blocs (like Pakistan) might struggle unless they secure their own trade agreements.
To better prepare for the new tariff regime, Pakistan must urgently diversify its export markets by deepening trade relations with regional partners, such as China, Central Asia and the Middle East, while preserving crucial access to the European Union’s Generalized System of Preferences Plus (GSP+) programme.
In the era of shifting trade alliances, Pakistan should actively pursue bilateral or regional trade agreements. Joining or aligning with emerging trade blocs could secure preferential access to large markets. At the very least, Pakistan should be at the table in any multilateral forums discussing exemptions or adjustments to Trump’s tariff regime.
Pakistan’s exporters need to do everything possible to absorb higher costs and boost efficiency. If Pakistan can compete on quality better than tariff-hit rivals, it might still hold its ground in the US market.
The writer heads the Sustainable Development Policy Institute (SDPI) and is a member of the advisory board of the Asian Development Bank Institute. He tweets/posts abidsuleri