Trade wars and tariffs

In an increasingly dynamic global landscape, Asia stands at the forefront of change, driven by a shared commitment to openness and economic integration. The region’s growth remains crucial to global development.

Home to more than half of the world's population, Asia accounts for nearly a third of global output in terms of purchasing power. 

The IMF has projected a 4.4% growth rate for 2025, citing supportive monetary conditions, while the ADB maintains its 4.9% growth outlook for developing Asia, reinforcing the region’s role as a key driver of global economic expansion.

Despite this promising outlook, Asia faces persistent geopolitical challenges, including rising trade barriers, escalating global tensions, and economic uncertainty — factors that could disrupt the region’s growth trajectory. 

The Trump administration’s imposition of a 20% tariff on Chinese goods under the International Emergency Economic Powers Act (IEEPA) has triggered a retaliatory response from Beijing. 

China has imposed a 15% tariff on American agricultural products such as chicken, wheat, corn, and cotton, along with a 10% tariff on goods like soybeans and pork. 

It has also tightened restrictions on business dealings with major US companies — moves that are likely to weigh on global trade sentiment.

The World Bank’s Global Economic Prospects for 2025 had already warned that US tariffs on trading partners could reduce global growth by 0.2 percentage points compared to baseline forecasts, with the impact worsening if proportional retaliatory measures are taken into account. 

With China, Canada and Mexico responding in kind, the global economic environment is likely to become even more challenging.

Amid these geopolitical tensions, China’s economic trajectory remains a stabilising force in the region. 

The Chinese government has maintained a clear and consistent policy direction, ensuring that economic progress is not derailed — despite domestic challenges and renewed pressure from a second Trump administration.

China may also explore possibilities to expand its Belt and Road Initiative (BRI) investments in the Middle East and Europe, strengthening infrastructure and trade connectivity. 

In a recent engagement, President Xi met with private-sector leaders and tech executives, signalling a potential shift towards a more business-friendly economic approach and push for technological self-sufficiency.

Chinese Foreign Minister Wang Yi has said that China will continue to retaliate against the “arbitrary tariffs” by the US, urging dialogue over coercion. 

Despite the ongoing challenging environment, China has set a 5.0% economic growth target for 2025 in the recent NPC meeting, emphasising industrial upgrading, renewable energy and strengthening domestic demand to sustain its economic momentum amid external pressures.

China may have both the will and the capacity to address these headwinds, but ongoing geopolitical shifts pose significant risks, particularly for developing economies in Asia that depend on external funding for infrastructure, education and social development. 

These nations may find themselves navigating between competing superpowers. 

The decoupling of the American and Chinese economies could also accelerate regional economic integration, with Asean playing a pivotal role in fostering intra-Asian trade.

Amid higher tariffs and a more fragmented global landscape, Asian economies are likely to intensify trade diversification efforts, strengthening ties with Europe, the Middle East, and intra-Asian markets while reassessing their trade dependencies. 

The real challenge for Asia lies in balancing geopolitical pressures while maintaining economic resilience and fostering stronger multilateral cooperation to mitigate the risks posed by an increasingly protectionist world. Despite these challenges, Asia’s economic potential remains substantial.

For Pakistan, existing economic challenges are already significant, and the trade war only exacerbates them. The country’s economy showed signs of stabilisation in the first half of FY2025, building on earlier efforts under the ongoing IMF programme. 

However, despite these improvements, economic growth remains largely consumption-driven rather than investment-led, with an underperforming industrial sector and persistent trade deficits straining capital accounts.

External factors, such as potential US tariffs on imports and fluctuations in remittances, could further pressure Pakistan’s fragile economy. 

Nonetheless, foreign direct investment (FDI) grew by 20% in the first half of FY2025, reflecting cautious yet improving investor confidence. 

The IMF emphasises that key reforms under its programme aim to enhance Pakistan’s competitiveness and create a more conducive environment for private sector-led growth — ultimately driving higher productivity, employment and incomes.

The government is implementing adaptive policies, including trade enhancement strategies and the introduction of the URAAN Pakistan plan. 

One recent challenge has been the halt of USAID funding in Pakistan, which has historically played a crucial role in supporting economic reforms. 

The exit of USAID signals a shift in Western economic priorities, leaving countries like Pakistan more dependent on regional allies, particularly China, which continues to provide socio-economic support through CPEC, CIDCA, and direct investments. 

Pakistan must now rethink its economic and development strategies in light of diminishing Western financial assistance. As a result, industrial cooperation under CPEC becomes even more critical and requires strategic planning and decisive action on Pakistan’s part.

The role of third-party participation in CPEC is also now critical, but its success depends on how well the government crafts an actionable plan to leverage strategic partnerships with Saudi Arabia, UAE, Turkey and Central Asian States. 

These are countries that can invest in key sectors like renewable energy, logistics, IT, mining and tourism infrastructure. 

For that to happen, bureaucracy and diplomacy must align with a proactive strategic, investor-friendly approach that can enhance sustainability, geopolitical acceptance, and economic viability of CPEC Phase II — particularly through SEZs development.

Pakistan stands at a crossroads where strategic decision-making has to be tailoured within its economic trajectory. Navigating relationships with both the US and China is a strategic imperative for Pakistan.

On the economic front, Pakistan needs to address its challenges through innovative reforms, pragmatic security mechanism and strategic business alliances that can enable Pakistan to become a key economic player in Asia. While challenges persist, the time for decisive action is now.

The writer is a project management specialist and is a faculty member at various institutes/universities, while also having served as a diplomat in China and Vietnam. He can be reached at: [email protected]

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News