Trump’s trade policies and global shifts

LAHORE: Donald Trump’s recent policy shifts -- particularly his aggressive trade stance, pressure on NATO, and changing approach to the Russia-Ukraine conflict -- are set to have both direct and indirect consequences for Pakistan.

As of March 2025, US President Donald Trump’s administration has introduced policies that have strained relations with European allies, particularly in trade and defence. In February 2025, Trump announced a 25 per cent tariff on goods imported from the European Union (EU), accusing the bloc of bias against the US. In response, the EU has threatened to impose equally stringent countermeasures.

These policies could impact Pakistan in several ways. Trump’s 25 per cent tariff on EU goods may trigger global trade instability, potentially affecting Pakistan’s exports to the EU if economic growth in Europe slows. A retaliatory response from the EU could further shrink overall demand for imports, indirectly impacting Pakistan’s textile and manufacturing sectors.

Moreover, if Trump revives tensions with China, it could affect China’s overseas investments, including the China-Pakistan Economic Corridor (CPEC). A tougher US stance on Chinese technology and investments may hinder Pakistan’s ability to attract further Chinese funding for infrastructure and energy projects.

Trump’s stance on Ukraine suggests that the US may push for a settlement favourable to Russia. If this results in the easing of sanctions on Russia, oil prices could stabilise. However, if sanctions persist or intensify, global energy prices may remain high, exacerbating Pakistan’s import bill and fuelling inflation.

Trump’s administration has historically favoured India, particularly in trade and defence. Further strengthening of US-India military and economic ties could heighten Pakistan’s strategic concerns. Increased US military assistance to India may shift the regional balance, compelling Pakistan to boost its defence spending at the expense of economic development.

Stricter visa policies for Muslims and South Asians under Trump could create difficulties for Pakistani workers and students in the US. Any restrictions on remittances from the US could negatively impact Pakistan’s foreign exchange reserves.

To navigate these challenges, Pakistan must accelerate efforts to diversify its export markets, focusing on Africa, ASEAN and the Middle East to reduce reliance on Western economies. Strengthening trade ties with Turkey, Central Asia and Russia could provide alternative markets for Pakistani goods. While maintaining strong relations with China, Pakistan should also attract investment from other Asian and Gulf nations to avoid over-dependence on Beijing. Expediting the development of CPEC’s special economic zones (SEZs) could enhance industrial productivity and boost exports.

For energy security, Pakistan should explore long-term agreements with Gulf nations -- including Qatar, the UAE and Saudi Arabia -- to hedge against oil price volatility. Investing in renewable energy projects could reduce reliance on imported fossil fuels.

Diplomatically, Pakistan should engage with both the US and China to prevent Washington from fully aligning with New Delhi at Islamabad’s expense. Strengthening regional partnerships with Turkey, Saudi Arabia and Iran could help Pakistan maintain strategic leverage.

Domestically, Pakistan must bolster economic resilience by implementing structural reforms to reduce reliance on foreign loans and foster a self-sufficient economy. Improving the ease of doing business is crucial to attracting foreign direct investment (FDI) from countries beyond China.

Expanding IT and services exports could help Pakistan lessen its dependence on traditional sectors like textiles. While Trump’s policies pose economic and strategic risks, they also present new opportunities. The best course of action for Pakistan lies in economic diversification, diplomatic balance, and stronger regional trade partnerships. By reducing reliance on Western economies and enhancing trade with Asia, Africa and the Middle East, Pakistan can mitigate risks and ensure economic stability in an uncertain global landscape.

During his first term (2017–2021), Trump’s ‘America First’ policies, trade wars (particularly with China), and unpredictable approach to international agreements introduced significant uncertainty in global trade. While these policies caused disruptions, many economies adapted and even benefited by filling trade gaps created by US-China tensions. Unfortunately, Pakistan was not among the beneficiaries.