US President Donald Trump’s tariffs have wiped an estimated $10 trillion off global equities since they were announced last week, raising fears of a global recession. The move includes at least 20 per cent tariffs on most of the main US trading partners and even tariffs as high as 29 per cent on marginal trading countries like Pakistan. Almost every major equities index in the world ended Monday in the red and Asian markets were particularly hard hit as losses triggered circuit-breakers (automatic suspensions in trading) across several countries. This includes Pakistan, where trading was halted for an hour at the PSX after the benchmark KSE-100 Index plummeted by 6000 points. Overall, the KSE-100 ended Monday down by 3,882 points. The worldwide equity rout is soon expected to trickle down into the real economy as trade is disrupted and prices rise across the world.
While some experts predict that Trump might reverse course on the tariffs, the president himself has given no such indications. In fact, he only seems to be doubling down, vowing to impose additional 50 per cent import taxes on China if it does not withdraw retaliatory measures against his earlier levies. However, it is not as though those who have taken a more conciliatory approach are making any headway with the US president. The most likely path forward appears to be tit-for-tat escalation in tariffs between the US and most of its major trading partners and, consequently, a decline in global trade, investment and growth. The country that has served as the linchpin of the global economic order, championing free trade and a globalised economy, is now in full retreat from the ideals it was still promoting less than six months ago. The US now risks drawing others into a trade alliance against itself.
Sadly, the US economy has more than enough weight to do serious damage to the rest of the world as it beats a haphazard retreat from the globalisation it once led. This will likely not be the last time circuit breakers go off in Pakistan or the rest of Asia over the remaining four years Trump will be in office. Emerging and developed economies alike are highly dependent on access to the US market for growth and the dollar still remains the global currency of choice. With access to the US market increasingly restricted, countries like Pakistan will have a harder time getting the forex they need to finance their deficits and maintain creditworthiness. And the timing of this tariff shock could not have been worse, with the country finally seeing some stability return to the economic scene. Navigating this impasse will require closer engagement with the US to see what can be done about the tariffs and it is encouraging to see Foreign Minister Ishaq Dar discussing the tariffs on his maiden phone call with US Secretary of State Marco Rubio. Countries like China can back themselves to get into a trade fight with the world’s largest economy and still win. Pakistan will need a more measured approach, even if it ultimately results in naught.