Navigating the global power shift

The Global Power Shift and Trade Wars are reshaping markets, supply chains, alliances, and the futures of nations like ours. Trade has always been more than commerce; it has been a reflection of power. Throughout history, the rules of global trade have mirrored the interests of the dominant nations. In the age of mercantilism, wealth was measured in gold and silver. When Britain led the world in the 19th century, free trade became the norm. After World War II, the United States promoted open markets and international cooperation.

Trade norms do not emerge in a vacuum; they reflect who is setting the agenda. For decades, we lived under the consensus of globalization, that nations should specialize, exchange freely, and trust that all boats would rise with the tide. However, today the tide has shifted, fractured by technological leaps such as AI, energy transitions, demographic changes, and geopolitical rivalry. The world is moving from open globalization to strategic globalization. As we navigate this new era, the question is not whether trade will continue, but under whose terms, and to whose advantage.

In this context, it is critical to reflect on few points.

First, the establishment of the World Trade Organization (WTO) in January 1996 was meant to introduce enforceable trade commitments, with a stronger dispute settlement system and ensure greater policy predictability. It was envisioned to be successor of GATT (general agreement on tariffs and trade). Serving as a major catalyst in global trade expansion and tariff reduction the WTO has helped merchandise trade grow more than fourfold from USD 10.9 trillion to USD 49.7 trillion between 1996 and 2024. In addition, global tariffs have also declined by 48 percent following WTO establishment, allowing for higher trade volumes and superior cross border integration. In 1996, the trade weighted Most Favored Nation tariff was 7.1 percent, which declined to 3.7 percent in 2021.

The WTO’s structure was key to the export-driven industrialization in numerous developing countries. In China, for instance, merchandise exports increased from USD 3.1 trillion in 2001 to over USD 3.5 trillion in 2024, cementing the country’s position as the leading exporter of goods. Bangladesh and Vietnam capitalised on the WTO framework. Evidence indicates readymade garment sector in Bangladesh expanded to USD 38 billion in 2024 and in Vietnam to USD 495 billion in 2024. These countries diversified trade and value chains and nurtured FDI-friendly investment, maximizing WTO related gains.

Pakistan has not been able to leverage WTO framework benefits. Export to GDP ratio declined from 16 percent in 1990 to 8 percent in 2025. Key factors contributing to this under-performance is reliance on low value-added textiles, energy shortages, logistics inefficiencies and policy inconsistencies.

Historically, Pakistan’s trade regime has been among the most restrictive regionally and globally. Import tariffs and other discretionary and unpredictable para tariffs, including customs duties and regulatory duties, made it expensive to import critical inputs and intermediate goods for enhancing quality and value addition. Over the past decade, the rising use of para tariffs has pushed the average MFN tariff to nearly 20 percent, one of the highest among comparator countries.

Tariffs have also been used to protect selected industries from external competition often contributing to inefficiencies and distorting resource allocation across sectors. The government’s discretionary tariff policy has led to high-cost inputs for exporters and a tilt in trade policy that makes export less attractive compared to serving the protected domestic market. World Bank research shows a 10 percent rise in input tariffs has effectively led to decrease in productivity by 2.5 percent.

Exchange rate management is another factor undermining exports. A market-based exchange rate is critical to ensuring that scarce resources are utilized efficiently, focusing on the most productive areas of the economy. Overvalued exchange rate erodes exporter’s margins, impacted by external pressures such as swings in global demand and commodity prices. The result is a consistent decline in exports as a percentage of GDP, depleting FX reserves and a rise in fiscal debt burden.

Poorly designed policies have significantly raised the cost of doing business across productive sectors, severely depressing investment and productivity, particularly in the energy sector. Years of cumulative poor decisions and a failure to address structural market flaws have resulted in cripplingly high energy prices.

A prime example is the inability to recover costs and problematic historical contracting, which has created a massive USD 8 billion circular debt in electricity and a USD 6 billion debt in the gas sector. On top of this, unreliable energy supply is estimated to cost the economy an additional USD 8 billion annually. Attempts to resolve these debts by recovering costs have led to energy prices that are high compared to other countries, hurting consumers and businesses across the board.

The rules are however being rewritten rapidly. The challenge for the developing nations is to reorient and strategize themselves to withstand adversities by modernizing and reshaping— to not just survive — but to launch aggressive reforms to enhance export value-addition and diversification. Getting international trade regime is critical as Pakistan needs to generate foreign exchange to settle its debt FX liabilities.

Second, let’s reflect on shifting trade dynamics and the new age of trade war. Over the past decade, the United States has undergone a fundamental shift in trade policy, increasingly turning to tariffs and industrial strategies not merely as economic tools, but as instruments of national security, strategic competition and political considerations.

According to studies, the effective US tariff rate has increased to 13 percent, the highest since the 1941 Great Depression. This will have a profound impact on global trade flows, leading to lower global growth and supply chain disruptions, leading to higher prices. According to the WTO, the US tariffs and retaliatory measures by other countries will lead to global GDP growth slowing down to 2.2 percent (from 3 percent in 2024). The tariff increases will lead to a reduction in imports and exports, lower productivity and growth, and an intensification of inflation.

The primary driver is China’s rapid industrial ascent. Its fast transforming state-led model has enabled dominance in clean energy, electric vehicles, rare earth processing, and advanced manufacturing. China’s growing trade surplus, backed by its rising technological and innovative edge enhanced its productivity, competitiveness and export-led growth with higher value addition. Originally, the US was concerned about China’s state-led subsidies, which were perceived as both economically distorting and strategically threatening.

Third, the events such as Covid pandemic and the war in Ukraine have exposed vulnerabilities in the US supply chains, especially in defense, health, and energy sectors, that depend heavily on Chinese production. A 2024 US government report revealed China as a top-three supplier in 11 of 15 critical defence technologies. Consequently, US trade logic shifted: from prioritizing low-cost efficiency to securing industrial resilience and geopolitical autonomy.

Tariffs have transformed from short-term protectionism into a deliberate industrial strategy. The US now imposes a baseline 10 percent tariff on all imports, and up to 125 percent on Chinese goods. BlackRock notes these are structural measures aimed at reindustrializing America and insulating critical supply chains.

Meanwhile, China has escalated its industrial push, subsidizing clean tech, EVs, and advanced manufacturing, becoming the world’s top auto exporter and reversing a USD 150 billion clean energy deficit.

With 90 percent of global rare earths processed in China and dominance in key defense technologies, trade concerns are now deeply strategic. J.P. Morgan highlights that US defence systems’ dependence on Chinese semiconductors elevates trade into national security territory.

This rivalry is reshaping the global trade map. Emerging markets such as Vietnam, Mexico, and India have absorbed much displaced supply chains. However, their integration with Chinese inputs and growing US trade deficits make them potential tariff targets.

Beyond the US and China, the European Union and Japan are recalibrating, cautiously balancing trade openness with strategic autonomy, while multilateral systems weaken, regional blocs such as RCEP, USMCA, and GCC alliances rise. We are entering a multipolar trade order, fractured yet brimming with opportunity.

In short, trade dynamics are moving from globalization to strategic blocs.

Fourth, let me reflect on Pakistan’s Strategic Navigation. Amid the trade dynamics shifts, Pakistan stands at a pivotal crossroads. Rather than a bystander, Pakistan can be a pragmatic, flexible partner in the emerging trade order. With the US, our largest export market accounting for USD 5.5 billion and a USD 3.4 billion trade surplus, we remain a very small piece of the US import pie (0.16 percent), keeping us clear of tariff crosshairs. This creates a window to expand into textiles and IT.

US tariffs on China open up space for Pakistani goods in bed linens, pullovers, and digital services. By offering Washington supply chain diversification rather than one-sided concessions, Pakistan aligns with shared goals of resilience, digital connectivity, and regional stability.

Fifth, Strategic Defence and Investment Pact with Saudi Arabia marks a historic turning point. Declaring that an attack on one is an attack on both elevates trust to new heights. Economically, it links Pakistan to Saudi Vision 2030, creating opportunities in energy, agriculture, logistics, and Gulf–Africa connectivity. Saudi investment, combined with corridor infrastructure, can anchor Pakistan as a key Gulf supply chain node.

Our enduring friendship with China remains vital. The China Pakistan Economic Corridor (CPEC) has laid vital infrastructure and energy foundations. The next phase must focus on export-driven growth, technology transfer, and attracting Chinese FDI into textiles, electronics, and renewable energy manufacturing. At the same time, balancing Chinese partnership with the US and Gulf ties is essential to avoiding overdependence and maintaining strategic resilience.

Sixth, none of these ambitions will succeed without reforms at home. Pakistan must build capacity through energy reliability, logistics upgrades, human capital development, and institutional strengthening. Improving governance, regulatory predictability, and enforcing fair taxation, while investing in vocational and STEM education will be crucial. Capturing lost value, such as by halting the export of raw cotton yarn and instead producing value-added textiles worth hundreds of millions annually, can boost competitiveness.

The global trade order is not merely evolving; it is being rewritten. Tariffs, industrial policies, and strategic alliances are replacing the old orthodoxy of unfettered globalization. For Pakistan, this is not a storm to endure but a tide to navigate with purpose and resolve. Most of all by removing policy distortions, and embarking on export-led growth like ASEAN and other regions have done so.

We must act with strategic clarity: deepen our trade and technology ties with the United States; leverage our historic pact with Saudi Arabia to unlock investment, logistics integration, and defense cooperation; and strengthen our trusted partnership with China, while building the institutional capacity and export competitiveness needed to thrive in a fragmented world. The global map is being redrawn, and Pakistan holds the geography, partnerships, and ambition to emerge as a vital regional hub of trade, connectivity, and resilience. It is up to the policymakers to grab this opportunity.

Copyright Business Recorder, 2025