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Reserve R7 — Trump's Tariffs, the Trade War and Pakistan

Reserve question: Discuss the impact of the Trump administration's tariff policy on the global trading system and on developing economies. What opportunities and challenges does it create for Pakistan's exports? (20)

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Why it is likely: trade and globalisation are syllabus items ("International Trade", "Globalization"); the trade war was asked in 2022. In 2025–26 US tariffs reshaped world trade, and Pakistan won a lower rate than India. Probability: medium.

What the examiner wants

  • Impact on the global trading system (WTO, supply chains)
  • Impact on developing economies
  • Opportunities and challenges for Pakistan
  • Marks split: tariff policy ~3 · global system ~5 · developing economies ~4 · Pakistan ~6 · conclusion ~2

Outline

  • I. Introduction
  • II. Trump's tariff policy (2025–26)
  • III. Impact on the global trading system
  • IV. Impact on developing economies
  • V. Pakistan: opportunities
  • VI. Pakistan: challenges
  • VII. Way forward
  • VIII. Conclusion

Model Answer

I. Introduction

  • President Trump's second term turned tariffs into the main tool of US economic and foreign policy.
  • Thesis: the tariffs have weakened the rules-based WTO system and pushed the world toward bilateral deals and fragmented supply chains. Developing countries lose from uncertainty, but some, including Pakistan, can win market share if they secure good deals and become competitive.

II. Trump's tariff policy

  • A baseline tariff on most imports; higher "reciprocal" rates by country (2025).
  • Tariffs on China rose above 100% before the Busan truce (October 2025), extended after the Washington summit to 10 January 2027.
  • India faced heavy tariffs, including a penalty linked to Russian oil purchases (2025).
  • Pakistan secured a trade deal (July 2025) with a lower rate than India's, plus cooperation on oil and minerals.

III. Impact on the global trading system

  • WTO undermined: most-favoured-nation rules ignored; the Appellate Body has been non-functional since 2019.
  • Bilateralism: deals negotiated one by one, often tied to security or investment pledges.
  • Supply-chain shifts: "China plus one" moves toward Vietnam, Mexico, India and others.
  • Retaliation and uncertainty: lower investment, plus inflation in the US and elsewhere.
  • Other blocs (RCEP, the EU's trade deals, BRICS trade in local currencies) grow as alternatives.

IV. Impact on developing economies

  • Losers: export-dependent economies facing high tariffs (textiles and electronics hubs), and countries hit by US aid cuts at the same time.
  • Possible winners: those with lower negotiated rates or a chance to replace Chinese goods.
  • Wider damage: volatile currencies, lower commodity demand, and less policy space.

V. Pakistan: opportunities

  • The US is Pakistan's largest single export market; total trade was about $11.5 billion (2025).
  • A lower tariff than India and China in textiles and apparel could shift orders to Pakistan.
  • Critical minerals and US investment (the USSM–FWO framework; shipments since March 2026).
  • IT services aren't affected by goods tariffs, which leaves room to grow.
  • Chinese relocation: firms moving out of China could use CPEC SEZs to export to the US, if rules of origin allow.

VI. Pakistan: challenges

  • High production costs: energy (made worse by the 2026 crisis), taxes and logistics.
  • Low-value, concentrated exports: mostly textiles.
  • Policy uncertainty: US rates can change overnight.
  • Rules-of-origin scrutiny on Chinese inputs.
  • Competition from Bangladesh, Vietnam and Cambodia.
  • Political and security risks at home that deter buyers and investors.

VII. Way forward

  1. Lock in tariff terms through a broader US–Pakistan trade and investment framework.
  2. Cut costs: competitive energy tariffs for exporters, tax refunds, port efficiency.
  3. Move up the value chain: garments, technical textiles, home textiles with branding.
  4. Diversify markets: the EU (GSP+ until 2027), the Gulf, Central Asia, Africa.
  5. Invest in IT exports and minerals processing.
  6. Build traceability to meet rules-of-origin and compliance standards.

VIII. Conclusion

  • Trump's tariffs have shaken the rules of world trade, and developing countries feel the uncertainty most.
  • For Pakistan, the tariff gap with competitors is a rare opening, but it will only pay off if Pakistan fixes the costs and narrowness that have held its exports back for decades.

Key facts

  • Busan truce: October 2025. Extended to: 10 January 2027 (Washington summit, 23–25 September 2026).
  • US–Pakistan trade deal: July 2025. Trade 2025: about $11.5 billion.
  • WTO Appellate Body: non-functional since December 2019.