uesday, March 4, was a day of profound turbulence for the global economy due to the escalating trade conflict between the US on one hand and China, Canada and Mexico on the other. The intensification of the global trade war reverberated across financial corridors, triggering significant instability.

In a bold move that further entrenched the global trade rift, US President Donald Trump imposed additional tariffs on imports from China, Canada and Mexico. Following a brief grace period, a 10 percent tariff on Chinese goods took effect on February 4. Imports from Canada and Mexico faced a steep 25 percent tariff.

These tariffs were justified as necessary to address illegal immigration and the flow of narcotics into the US. The immediate fallout was severe: global stock markets plummeted amid fears of a prolonged trade standoff, unsettling investor sentiment worldwide.

In retaliation, China, Canada and Mexico immediately implemented countermeasures, targeting US exports. China focused on American agricultural products and imposed strategic export controls on US defence contractors.

Canada, for its part, unveiled an extensive tariff package, imposing a 25 percent levy on $155 billion worth of US goods. The initial phase, which impacts $30 billion in imports, commenced on March 4, 2025. The additional tariff on the remaining $125 billion imports is set to take effect on March 25. The rising trade barriers are poised to intensify global economic volatility. Emerging markets, such as Pakistan, already grappling with fiscal strains, are expected to bear the brunt of the fallout.

On March 4, Pakistan’s stock market reflected the gravity of the situation. The Pakistan Stock Exchange experienced a sharp decline in capitalisation, with the KSE-100 index dropping by 1,265 points. Investor confidence waned as concerns mounted over delays in securing a crucial $1.1 billion IMF tranche.

A revenue shortfall of Rs 606 billion during the first eight months of the fiscal year raised further doubts regarding the country’s capacity to meet its financial obligations, triggering panic selling across key sectors such as banking, energy and manufacturing.

Adding to the economic uncertainty, the ongoing security challenges in Pakistan worsened investor sentiment. On the same day, a terrorist attack in Khyber Pakhtunkhwa’s Bannu Cantonment highlighted the fragile security situation, driving up security-related expenditure and further undermining confidence in Pakistan’s stability.

Despite some early signs of economic stabilisation in 2025, such as a decline in inflation and rising foreign exchange reserves, the country’s structural inefficiencies, coupled with unpredictable policies and limited access to external financing, pose significant risks.

Pakistan’s vulnerability to external shocks is underscored by its heavy reliance on imported crude oil. As global commodity prices are increasingly influenced by the ongoing US-China trade tensions, fluctuations in oil prices could significantly affect Pakistan’s energy sector.

S&P Global has projected a 5 percent increase in Pakistan’s crude oil imports for the fiscal year ending on June 30, and a 7 percent rise for the full calendar year, driven by a rebound in industrial production. While a shift towards natural gas and renewable energy could help mitigate the impact of rising oil prices, disruptions in global supply chains remain a significant risk, potentially raising costs and exacerbating inflation in essential goods and transport services.

In retaliation, China, Canada and Mexico have implemented countermeasures, targeting US exports. China has focused on American agricultural products and imposed strategic export controls on US defence contractors.

The currency market presents another source of concern. A sharp depreciation of the Pakistani rupee against the US dollar could drive import costs, further exacerbating the cost of living. As Pakistan is a net importer of edible oils, machinery and industrial inputs, a weaker rupee could push production costs higher, impacting both consumers and businesses.

Pakistan’s edible oil sector, which relies on imports from Malaysia and Indonesia, is already experiencing price volatility due to disruptions in global supply chains. Pakistan is the world’s fourth-largest importer of palm oil. An escalation in the trade conflict could worsen its food inflation, adding strain to the nation’s economic fabric.

Investor confidence in emerging markets like Pakistan is poised to suffer as global risk aversion increases. Prolonged uncertainty may discourage foreign direct investment, which is already a challenge for Pakistan. Key sectors, such as manufacturing, technology and logistics, could see reduced capital inflows, stalling economic expansion and job creation.

Pakistan’s textile and agricultural industries, which are heavily reliant on exports to China, the US and the EU, stand to lose out if global demand dampens due to the trade war’s ripple effects.

To weather the storm, Pakistan must adopt a proactive strategy. Diversifying its export markets and strengthening trade relationships with non-traditional partners in Africa, Central Asia and ASEAN could mitigate the risks associated with its reliance on volatile economies. Investment in domestic industries, particularly food processing and energy, will be crucial to reducing dependence on imports and enhancing economic resilience.

Strengthening regional alliances through increased cooperation within trade blocs could also offer Pakistan a lifeline in navigating the turbulence of global trade disruptions.

Reinforcing currency resilience is equally important. Stabilising the rupee requires securing external financing, managing trade imbalances and implementing sound monetary policies. Policymakers must foster a conducive environment for foreign investment and ensure policy consistency and macroeconomic stability.

In sum, Pakistan faces a crossroads. The confluence of external economic shocks and domestic vulnerabilities places the country at a critical juncture. Its ability to navigate this complex crisis will depend on strategic policymaking, effective crisis management and the creation of a conducive environment for investment. Failing to act decisively could lead to prolonged economic distress. A well-coordinated response could turn it into an opportunity for long-term economic growth and stability.

The writer is a senior lecturer in finance, leading international and trans-national education at Birmingham City University’s College of Accountancy, Finance and Economics