Trump’s tariff chaos

Over the past two weeks, global markets have been rocked by a series of dramatic and unpredictable moves from the Trump administration. In what many analysts are now calling ‘Trump’s tariff chaos’, an onslaught of unilateral executive orders, skyrocketing tariffs and ensuing market volatility has rattled investor confidence and strained international alliances.

With bond yields surging and geopolitical trust in American leadership waning, the recent announcement of a 90-day pause on further tariff hikes – while retaining the 10 per cent tariff on many imports and an escalated 145 per cent tariff on select Chinese goods – has offered only temporary relief.

In just ten days, Trump’s tariff policies have triggered a domino effect across the global economy. Financial markets have swung wildly as investors grapple with relentless policy shifts. Businesses, left scrambling for clarity, have seen global capital markets shed nearly $10 trillion, with partial recovery only after the 90-day pause. Beyond the numbers, companies reliant on low-cost supply chains – especially from China – are reevaluating strategies as production costs rise and logistics are disrupted, ultimately burdening American consumers through higher retail prices.

The 10 per cent tariff on a broad range of consumer goods is intended to bolster domestic production, but it is increasing everyday expenses for households already under economic strain. Meanwhile, the more punitive 145 per cent tariff on Chinese imports – met with resolute retaliation from Beijing – has escalated the trade war between the world’s two largest economies. China’s countermeasures reaffirm its unwillingness to yield, deepening fears of global instability.

Trump’s 90-day pause on further tariff hikes, while framed as a window for negotiations, provides limited respite. Existing tariffs remain, and deeper uncertainties persist. Companies face sustained cost pressures, while US consumers bear the brunt of price hikes on everyday goods. Businesses sourcing from China are grappling with inflated costs, with some even relocating supply chains – a move that threatens jobs and squeezes margins.

The repercussions of this crisis extend far beyond US-China relations. There could be: supply chain disruption where manufacturers face delays and higher input costs. Shifting to alternative suppliers is proving costly and complex.

There are also inflation and stagflation risks. Tariff-driven import costs are pushing consumer prices higher. A recent University of Michigan survey shows inflation expectations at their highest since the post-pandemic recovery. Rising prices are squeezing middle-income households, while wages fail to keep pace. This has ignited fears of stagflation, a toxic mix of inflation and economic stagnation.

There is also bond market turmoil. US Treasury yields – typically seen as a benchmark for global economic stability – have risen sharply. Rather than signaling growth, the spike reflects investor concern that the US may no longer be viewed as the ultimate safe haven for surplus capital. Countries like China and Saudi Arabia are reportedly scaling back Treasury purchases, unsettling global markets.

A weakened dollar and soaring gold: the US dollar index has declined steadily in recent weeks as confidence wanes. In contrast, gold prices have surged to historic highs, underscoring a global pivot toward safe-haven assets outside the US financial system.

Then there’s investor volatility. Equity and bond markets remain turbulent. Continued uncertainty over Trump’s economic direction signals a heightened risk of capital flight to regions with more predictable policy environments.

The threat of a global recession is no longer hypothetical. With the world’s two largest economies in conflict, growth forecasts are increasingly pessimistic. Major global institutions, including the CEO of BlackRock, have warned of a looming downturn and possible recession.

Within the US, consumer sentiment has deteriorated sharply. Retail spending is slowing, credit conditions are tightening and corporate investment is being deferred. The housing market is also showing signs of stress. The US economy appears to be walking a fine line between inflation and contraction, a classic setup for stagflation.

Meanwhile, China has adopted a more strategic and patient approach – combining targeted retaliatory tariffs with a focused push for self-reliance in key sectors. While the Trump administration has reportedly been waiting for a call from Chinese President Xi Jinping, there is no indication such outreach is forthcoming. Beijing’s restrained yet calculated response suggests a longer-term game plan, positioning itself as an anchor of stability in an increasingly unstable world.

Traditional allies are beginning to reassess their dependence on US leadership. Trade blocs such as the EU, Asean and the African Union and traditional allies such as Canada, Mexico, Japan, South Korea and Australia are prioritising regional integration and exploring new trade partnerships.

Multinational corporations are delaying capital expenditures, reevaluating risks, and redirecting investment toward jurisdictions with greater policy consistency. A growing number of investors appear to be moving away from US-centric strategies in favour of diversified, multipolar portfolios. As Trump’s erratic policies heighten global uncertainty, the economic centre of gravity may begin to shift.

For Pakistan, this geopolitical realignment presents both challenges and opportunities. US market volatility and enhanced tariffs may impact key export sectors like textiles. While a trade delegation is being sent to address immediate trade imbalances, over the medium term, Pakistan can benefit by leveraging its strategic location – especially through enhanced regional cooperation and CPEC-led trade expansion.

To position itself effectively, Pakistan must diversify export markets. Reduce reliance on US markets by strengthening trade ties with Southeast Asia, the Middle East, Africa, and Central Asia. Pakistan also needs to reopen trade with India, reinvigorate Saarcs, and expand overland routes through Iran and Central Asia.

We need to shift from raw material exports to high-value, branded, and certified products across textiles, agriculture, surgical instruments and IT. Apart from that, Pakistan also needs to negotiate smarter FTAs. It should ensure new trade agreements protect local industry while opening up high-potential sectors.

Pakistan should offer incentives for export-oriented tech firms, promote automation in manufacturing and attract investment from the diaspora. It also needs to leverage lower oil prices. Reduce energy import costs and redirect fiscal savings into infrastructure and logistics development.

And, finally, the country should upgrade trade infrastructure and accelerate digitization at ports and customs to enhance efficiency and transparency.

Trump’s tariffs represent a departure from decades of US-led economic consensus. The short-term pause may temporarily delay further escalation, but the broader trajectory remains unchanged. As global trust in US leadership diminishes, the foundations of the post-WWII economic order – open trade, capital mobility and dollar dominance – are beginning to crack.

For developing nations like Pakistan, this is both a warning and an opportunity. The road ahead demands nimble diplomacy, bold reforms, and strategic foresight. The global chessboard is being reset – and those who act early may shape the rules of the new game.

Trump’s tariff chaos has triggered a historic inflection point. With inflation rising, bond yields climbing, gold soaring and recession risks mounting, the world is entering uncharted territory. For Pakistan, the imperative is clear: act with vision, prepare for turbulence and seize the moment to reimagine its economic future in a rapidly changing world.