Donald Trump is about to learn that the world is a lot bigger than he imagined, and the stick he is trying to wield to bring it to kneel before him, a lot smaller.

More than the tariffs themselves, the erratic nature of his decision-making, his mercurial temperament and the rough treatment he has meted out to friends, allies and enemies alike will have the most lasting impact on America’s position in the world.

We are seeing nothing less than a superpower gone rogue and all other countries in the world will now start searching for ways to protect themselves from its mercurial impulses. The single-most important message that has gone out from the Trump White House is that America is no longer a reliable partner for trade or security.

THE IMPACT ON PAKISTAN

In the immediate term though, it will be necessary to tally up the costs. For Pakistan, the tariffs present a mixed outlook. For now, Pakistani exports will face a 10 percent increased tariff in the United States, but so will all Pakistan’s competitors, except China, whose exporters face a trade-killing 145 percent tariff. One way to tally up the costs is to start counting the dollars.

As US President Donald Trump’s global tariffs trigger worldwide market chaos and geopolitical fallout, the question on everyone’s lips is what the endgame behind the radical American government actions is. Khurram Husain explores the possible motivations as well as the deeper, more dangerous unravelling of the post-war global order and what it means for fragile economies such as Pakistan’s…

A recent policy note put out by Pakistan Institute of Development Economics (PIDE), titled ‘Impact of Unilateral Tariff Increase by the US on Pakistani Exports’, reached the conclusion that the tariffs could shave off as much as $1.4 billion from Pakistan’s total exports. The authors assumed a tariff rate of 29 percent, which has been “paused” for 90 days since the day it was supposed to go into effect. Whether or not Pakistan actually faces a tariff rate of this magnitude remains to be seen, but the note is potentially useful in giving us an upper ceiling on what we can expect the tariff impact to be on Pakistan’s exports.

More importantly though, what matters the most for Pakistan is that the world is changing rapidly, and in ways so fundamental that it poses a near existential challenge for the country. To understand why, consider: since 1988, Pakistan has availed itself of at least 10 bailouts from the International Monetary Fund (IMF), a record high figure. There are not more than a handful of countries that can match Pakistan’s track record of going to the IMF for bailouts. The number of facilities that Pakistan has taken is even larger, since some of these bailouts utilised drawings from more than one facility.

Each bailout came when Pakistan’s foreign exchange reserves had depleted to a point of near default, and the continuation of the country’s external trade was at risk. By 1999, for example, the energy supply chain was perilously close to breaking point. In 2008, the country’s financial system was teetering on the edge of full scale meltdown, with the stock market frozen and a run on the banks in the early stages. In 2013, the energy supply chain broke down in earnest. In 2019, action was taken before things could get to a perilous stage, but in 2022 Pakistan was back on the brink of default and a near breakdown in the energy supply chain.

Any one of these outcomes — a run on the banks, a breakdown in the energy supply chain, a default on payment obligations to international creditors — would have been catastrophic. Any one of these events could send the country towards a complete breakdown of social order.

The only reason Pakistan averted that outcome was because of a foreign-funded bailout from multilateral creditors. The IMF programme underpinned this bailout, but the World Bank, the Asian Development Bank and then, in some instances, support from the Paris Club on debt restructuring were part of the overall offering. Pakistan has spent more than half of its time since the year 1988 labouring under successive fund programmes, struggling (and often failing) to pass their reviews.

Even today, the country teeters on the edge of a fragile stability. An ongoing IMF programme with stringent performance criteria keeps the government wedded to a severe path of austerity, in which growth is next to impossible. So long as it remains on this path, the economy remains stable and its minimum import requirements, especially of energy, continue to be met. But the moment the government deviates from the path, it will hasten a return to the cliff’s edge of default and dysfunction one more time.

What would happen if, one day, Pakistan were to land up in yet another balance-of-payments crisis, with the foreign exchange reserves depleted and imports grinding to a halt, and there was nobody willing to come with a bailout? That is the real danger that is now looming upon the country, and it matters far more than the dollar cost to Pakistan’s exports in the immediate term due to the sanctions.

The thing to note with these tariffs, along with all the other actions being taken by the Trump administration, is that this world that had kept Pakistan afloat since 1988, coming to the country’s rescue every time, is now fading away.

Trump has already threatened to walk out of the North Atlantic Treaty Organisation (Nato). He has walked America out of a number of international organisations, such as the World Health Organisation. At some point in the future, which is difficult to pinpoint, America will walk out of the key institutions that make up this international order — the World Trade Organisation (WTO), the IMF, the World Bank and, yes, even the United Nations (UN).

In substantial measure, this is already happening, as the superpower has made its continued engage­ments with these organisations more and more transactional, telling them to adhere more and more to American foreign policy interests to secure continued American patronage.

It has been evident for many years now that a breaking point is coming soon. With the arrival of President Trump, and his way of doing things, that breaking point now seems to be coming into sight.

What would happen if, one day, Pakistan were to land up in yet another balance-of-payments crisis, with the foreign exchange reserves depleted and imports grinding to a halt, and there was nobody willing to come with a bailout?

That is the real danger that is now looming upon the country, and it matters far more than the dollar cost to Pakistan’s exports in the immediate term due to the sanctions.

ERRATICNESS AND UNCERTAINTY

What is it about the tariffs that makes such an outcome more likely? Consider all the voices around the world now that are warning that a geopolitical and monetary order that was born after World War II is now disintegrating.

In truth, this order has been disintegrating for many years now, and its journey towards ruination is marked by spectacular events, such as the Great Financial Crisis of 2008 and the Euro Crisis of 2010, and the Great Brexit debacle. But now the madness that usually afflicts great powers in decline has risen to the highest levels of power in the global order — the American presidency — and is driving actions that are so erratic that modelling them and their impact has become next to impossible.

The erratic decision-making, and the extreme uncertainty that it creates, were on full display the day the tariffs were supposed to go into effect — midnight of April 9, 2025. But as the sun rose on that tumultuous day, stock markets around the world collapsed and then, surprisingly, bond markets also collapsed.

Usually, these two move in opposite directions, since money pulled out of one flows into the other. The bond markets are usually considered a safe haven for times when the stock markets are wracked by excess volatility. But, on this day, both tanked simultaneously.

This was the strongest indicator that the financial markets are now engulfed with an uncertainty that chokes their models. The hardest hit was the Nasdaq Composite, which plunged by 11.3 percent in morning trade, followed by the S&P500 which fell by 7.2 percent. The last time global stocks had seen such massive declines was when the Covid pandemic hit and the lockdowns were announced. But alongside these declines, the bond markets were also seeing a near meltdown.

There are some prices that are foundational for the world economy. The price of oil, for example, drives global growth and inflation, and is often a barometer for an upcoming recession. Another such foundational price in world financial markets is the yield on the 10-year US Treasury bond. This yield underpins virtually the entire derivatives markets around the world, which sees trillions of dollars of turnover on a daily basis. The price of the 10-year Treasury bond is arguably one of the most important ones in the world. On April 9, this price started plummeting.

Bonds are tricky creatures. Their prices and yields move in opposite directions; when the price falls the yield rises, under the assumption that you are buying the bond at a cheaper price and when you redeem it upon maturity, you will get more money because its value on maturity will be higher than the price you paid to purchase it.

The yield on 10-year Treasuries started spiking from April 7, and by April 10 it had climbed by more than 30 basis points. The last time this had happened was in 2013, when the Federal Reserve had provided the first hint that it might start to end its programme of easing interest rates that it had launched to support the economy during the Great Financial Crisis.

Confronted by this dual movement — spiking treasury yields and collapsing stock prices — Trump succumbed and, before the day was out, announced a “pause” on his plan to tariff the world.

WHAT’S WITH THE TARIFFS ANYWAY?

Two hallmarks of the Trump way of doing things came into sharp focus during these days — the bombast and the erraticism. The tariffs were announced as “Liberation Day” by Trump in a rambling press conference, and the pause was announced haphazardly, with Treasury Secretary Scott Bessent trying to argue that this was the plan all along, in one of the most unconvincing attempts to spin an erratic decision.

The speed with which they were announced, the size of the tariffs, and the ensuing meltdown on the financial markets followed by a hurried retreat triggered a larger conversation around what exactly was the reasoning behind the tariffs in the first place. In the days that followed, this conversation played itself out on just about every platform where the global economic conversation takes place, and every voice in the world weighed in on it.

Broadly speaking, three large schools of thought emerged. With some overlaps between them, they can be divided thus. The first group argued that a crude attempt was being made to use tariffs as a weapon to reverse a deteriorating trade position with respect to China. The second group argued this was more geopolitical than economic in nature. And last but not least was the argument that I call a version of the “Madman Theory”, which says there is no underlying rationality here and it all flows from the mercurial impulses of a corrupt and irrational man who craves attention and popularity more than anything else.

‘WEAPON AGAINST CHINA’

The first group likened the tariffs to what they called a Mar-a-Lago Accord. In reality, there was no actual accord, and no actual meeting at Trump’s Mar-a-Lago Club, after which the accord was named. The name is a reference to the Plaza Accords of 1985, in which the US assembled all its major trading partners and practically forced them to take steps to curb their exports to the US and to bring down the value of the dollar, which had soared in value, leading the Reagan administration to believe it was eroding America’s competitiveness on the global stage.

One paper summed up the thinking behind the Mar-a-Lago Accord. It was titled ‘A User’s Guide to Restructuring the Global Trading System’ and written by a relatively unknown trader at a private financial advisory firm. The author, Stephen Miran, was later appointed Chairman of the President’s Council of Economic Advisors.

In the paper, Miran points out that the US has been hit by a “China Shock”, a term popularised in a 2016 paper by three economists who argued that persistent trade deficits that the US was running with China was hollowing out America’s manufacturing industry, stagnating wages, and leading to political polarisation and a backlash against globalisation within the American working classes.

He says the shock happened because the US provides the world with its reserve currency — the US dollar — so every other currency can depreciate in value but the dollar cannot. Between 2008 and 2022, for instance, the dollar appreciated by almost 35 percent according to the US Dollar Index. Chinese exports around the world skyrocketed during these years, while America lost trade share massively.

To arrest this trend, then to reverse it, Miran said the US should pursue policies that seek to help bring down the value of the dollar, and link these policies to its security umbrella. He cites Treasury Secretary Bessent, who says that “more clearly segmenting the international economy into zones based on common security and economic system” will become necessary. The idea was to tariff Chinese exports to America, then tell the countries of the rest of the world to follow suit and apply similar tariffs on China or face the prospects of tariffs on their exports to the US.

In a nutshell, the Mar-a-Lago Accord was going to force every country in the world to choose who they want to trade with — the United States or China. It would build on the view that “national security and trade are joined at the hip”, in Miran’s words, and carve the world into large blocs. Countries would enjoy trade privileges with the US as well as a security umbrella provided by it, or they would be left out in the cold to fend for themselves. The target of all this was Europe, the oil kingdoms of the Middle East and the countries of North-east Asia, in particular, Japan, Taiwan and Korea.

This is what they had begun to launch in the first week of April with the tariff announcements. But two things happened that caused Trump to beat a hasty retreat. First was the meltdown in the financial markets, which was anticipated to some extent but not the sheer ferocity with which it hit.

Second, and equally importantly, the world did not buckle the way Trump had anticipated it would. Despite his bombastic announcement that world leaders were lining up to “kiss my ass”, the White House claimed 75 countries had reached out to Trump but never provided a list of who they were, leading to widespread talk that the figure was grossly exaggerated. In fact, China announced equally aggressive tariffs of its own against American products, and the European Union announced a 25 percent tariff on American products as well.

What is strange, however, is that the tariffs have no takers within America’s economy. In the past, whenever tariffs were used to protect American industry or workers from foreign competition, they were always demanded by big industry or agriculture interests. The famous Smoot-Hawley Tariff Act of 1930, for instance, was demanded by industry and agriculture, and opposed by academic economists. All other tariffs imposed since World War II were demanded by auto-makers, big steel or other industry interests.

But the Trump tariffs have been roundly criticised by all — manufacturers, agricultural companies, Wall Street — and no large labour union has voiced support for them. It’s strange that the tariffs are supposed to be about restoring manufacturing competitiveness, but manufacturers themselves are apprehensive at best, and opposed at most, to them.

‘IT’S GEOPOLITICS’

This is where the second theory comes in. One proponent of this theory is Doug Irwin, author of Clashing Over Commerce: A History of US Trade Policy, published in 2017, and probably the leading historian of tariffs as a trade weapon in American history. Speaking to the Financial Times during these days, Irwin centred everything on geopolitics, stating: “When we think about the history of the world economy over the past few centuries, what is striking is how important geopolitics is.”

Countries took bold unilateral steps to open up their trade with the rest of the world in times when they enjoyed an unchallenged economic and military dominance over all other countries. He cites the example of England’s unilateral repeal of the Corn Laws in the mid-19th century.

But trade frictions began to emerge in the latter 19th century once Germany emerged as an important military and economic rival. “It’s very hard to have or to sustain an open, free-trading world economy,” Irwin told the Financial Times, “when you have major players that are in potential military or political conflict with one another.”

Something similar is happening now, he argues. After the end of the Cold War, the US enjoyed a dominant military and economic position over the rest of the world, and led the way in bold new opening up of trade vistas globally with the creation of the WTO in 2001.

“What really brought that to a close was the rise of China and the rise of tensions with the US in terms of what China’s motives were,” said Irwin. “And inevitably, in some sense, that brings about trade friction.” The tension was building for many years, and Trump’s predecessors tried their own ways to deal with it, but it was Trump that “really changed the game in terms of actually explicitly confronting China.”

‘IT’S MADNESS’

The easiest of the theories to understand and explain is the Madman Theory. This one argues there is no rationality behind Trump’s moves. Rather they are driven by ego, xenophobia, corruption and just plain stupidity. “The entire American world position has been shattered by monkeys fiddling with the knobs in the cockpit,” writes Anusar Farooqui, an influential but controversial essayist, on his private Substack. There is a veritable literary feast of words in describing the mercurial impulses that fire Trump’s pistons. British journalist Janan Ganesh says in the Financial Times, “It is irrationality pure and simple.” In other places, he is a “narcissist” or a “solipsist” or just a plain “moron”.

Trump himself contributes much material to such descriptions. In the midst of the market turmoil of April 9, he said “people were jumping a little bit out of line, they were getting yippy.” When his Treasury Secretary tried to argue the tariff pause was part of the strategy all along, Trump himself said it was “written from the heart.” More recently, Vice President J.D. Vance said he was hopeful that the United Kingdom and the US could reach a trade deal because “the president really loves the United Kingdom. He loved the queen. He admires and loves the king.” And so on.

A more sinister take is floated by Anne Applebaum, author of Autocracy Inc., writing in The Atlantic. Trump’s behaviour is not irrational, she argues. It is self-serving and directly benefits him or a small coterie of people in his circle. America is transforming, she argues, into a kleptocracy like Russia or China, “where the rulers’ conflict of interest are simply part of the fabric of the system.” Importantly, she points out how the Trump family has built a cryptocurrency business “that could, in practice, serve as a vehicle for anyone to pay him indirect bribes.”

Applebaum argues the actions of autocrats in a kleptocracy make sense once you follow the money. “The right question to ask about Trump’s tariff policy is also financial: how will this enormous change to American trade policy benefit Trump?” she asks. Companies and countries now have an incentive “to play up to the president, to offer him political donations and maybe even to offer business deals to him, his family or his friends, in order to get some kind of exception made for themselves or their industry.”

THE INEVITABILITY OF IT ALL

It is possible all of these explanations are true to varying degrees. The opening of the 21st century does look similar to the closing decades of the 19th century in the sense of an emerging power increasingly challenging the economic and military might of the world’s superpower. Whether Trump had won or not, trade frictions between the US and China were going to grow.

In fashioning its response to this challenge, the US would necessarily leverage its position as the world’s leading consumer market, the supplier of the world’s only reserve currency, and the world’s leading military power as well.

Miran and others behind the so-called Mar-a-Lago Accord seem to have beat others in figuring out how to do this. But when it came to the implementation, the whole gambit suffered in the inept and admittedly kleptocratic hands of Trump and his autocratic tendencies, as well as his suspicion of anything foreign.

Perhaps it was always meant to be like this. From America’s perspective, somebody had to pull the trigger on China’s ascent. But it would take a madman to do so, given the heavily interconnected nature of today’s global economy.

Such a madman brought many other motivations to the game, besides the strategic imperative of forging an aggressive response to the China Shock. And those “other motivations”, described well by Applebaum, could be the undoing of the entire global position of the US altogether.

The writer is a business and economy journalist.
He can be reached via email at
[email protected] and on X: @khurramhusain

Published in Dawn, EOS, April 20th, 2025