Geo-economics of Trade: Strategic Challenges and Opportunities for Pakistan

by Mirza Abdul Aleem BAIG

Globalization has dominated for decades, but recent trade shocks like the U.S.-China tariff war raise doubts about its future. Rising tensions and national security-driven policies have intensified concerns over geo-economic fragmentation. Trade restrictions have surged and prompting calls for protectionism and nearshoring. Weakened multilateral institutions further fuel fears of a fragmented global trade landscape.

Against this backdrop, the India-Middle East-Europe Economic Corridor (IMEC) marks a significant shift in global trade and connectivity, positioning itself as a counterweight to China’s Belt and Road Initiative (BRI). This development has introduced new strategic challenges for Pakistan and its flagship economic project, the China-Pakistan Economic Corridor (CPEC).

In the midst of new global disorder, as global power dynamics shift, Pakistan must carefully navigate the emerging geopolitical realities, balancing its longstanding ties with China while addressing the implications of IMEC on its economy, trade routes, and strategic alliances.

The establishment of IMEC, a multi-modal economic corridor connecting India with Europe via the Middle East, is expected to streamline trade through high-speed rail networks, modernized ports, and digital infrastructure, promising efficiency and sustainability in global supply chains.

Unlike BRI, which is primarily driven by Chinese investment and loans, IMEC is a collaborative effort involving India, Saudi Arabia, the United Arab Emirates (UAE), the European Union, and the United States. By offering an alternative to China-centric trade networks, IMEC presents an opportunity for economic diversification for participating countries while strategically countering Beijing’s influence.

For Pakistan, the emergence of IMEC poses multiple strategic and geo-economic challenges. One of the primary concerns is the potential geopolitical realignment in the region. Traditionally, Pakistan has maintained strong ties with China, and CPEC has been a cornerstone of its economic strategy. However, the IMEC project strengthens India’s connectivity with the Middle East and Europe, positioning it as a preferred trade route.

This could lead to a shift in regional alliances, with Gulf nations and Western economies aligning more closely with India as a major trade partner. The diplomatic implications of this shift cannot be ignored, as Pakistan risks losing economic and political leverage in key regions that have historically been vital to its foreign policy.

The competition between CPEC and IMEC may also result in a diversion of investment. Investors seeking alternative trade corridors may be drawn toward IMEC’s promise of efficiency and seamless connectivity, potentially reducing foreign interest in CPEC-related projects.

Given that CPEC has faced challenges such as delays in infrastructure development, security concerns, and issues of financial sustainability, the appeal of IMEC as a more stable and geopolitically neutral option could impact the economic viability of CPEC in the long run.

If key stakeholders, including Middle Eastern partners and European investors, begin favoring IMEC over CPEC, Pakistan could face an economic setback that affects its long-term development goals.

Security concerns also play a significant role in Pakistan’s strategic calculations. With IMEC’s maritime routes operating in close proximity to Pakistan’s coastline, particularly near Gwadar, the increased presence of international stakeholders in the Arabian Sea could introduce new security dynamics.

Pakistan has already invested heavily in Gwadar as a key node of CPEC, but if IMEC successfully diverts trade to alternative ports in the UAE and Saudi Arabia, Gwadar’s strategic importance could diminish. Besides, increased Indian influence in Middle Eastern trade networks could complicate Pakistan’s ability to leverage its geographic position for economic gain.

This makes it imperative for Pakistan to ensure that its own trade corridors remain relevant and competitive in the changing regional landscape. The development of IMEC is also closely tied to broader regional stability, particularly in the Middle East.

Ongoing geopolitical tensions, including conflicts in the Red Sea region, instability in the Gulf, and the shifting dynamics of U.S.-China relations, could impact both IMEC and CPEC. Pakistan must remain vigilant in its diplomatic approach, ensuring that instability in key regions does not disrupt its economic interests.

To navigate these challenges, Pakistan must adopt a multifaceted strategy that prioritizes economic diversification, diplomatic engagement, and infrastructure modernization. First, while maintaining its strong relationship with China, Pakistan should actively seek to diversify its economic partnerships. Engaging with countries beyond the traditional CPEC framework, such as Central Asian states and Gulf nations, could help Pakistan attract investment and trade opportunities independent of IMEC’s impact.

Strengthening economic ties with ASEAN countries and exploring new trade agreements with African nations could also create alternative markets that reduce over-reliance on any single trade corridor. Pakistan must also focus on enhancing the competitiveness of CPEC-related infrastructure. Improving efficiency at Gwadar Port, addressing logistical bottlenecks, and ensuring timely completion of ongoing projects will be crucial in making CPEC an attractive option for global trade.

An essential aspect of Pakistan’s strategic response should involve the gradual normalization of relations with India, as continued hostilities severely limit Pakistan’s ability to fully leverage its geographic potential. While historical tensions remain a significant hurdle, a more pragmatic approach focused on economic cooperation could yield mutual benefits.

If Pakistan and India can establish trade agreements, particularly in sectors where both nations have comparative advantages, it could open new avenues for economic growth. Given that IMEC is positioned as an alternative to BRI, Pakistan could consider negotiating transit trade agreements with India to ensure that its ports, including Gwadar, remain viable in regional trade.

This would allow Pakistan to benefit from the economic flows facilitated by IMEC rather than being entirely sidelined by it. Over and above, improved diplomatic engagement with India could also strengthen Pakistan’s standing in the Middle East, as Gulf nations are increasingly prioritizing economic ties over political disputes.

Countries like Saudi Arabia and the UAE, which have historically maintained close relations with Pakistan, are also deepening their engagements with India, seeing it as an emerging economic powerhouse. A more balanced approach by Pakistan in its relations with India could help ensure that it remains an essential partner for key Gulf economies, securing long-term economic benefits.

In the domain of diplomacy, Pakistan should actively participate in regional forums to shape the discourse on economic connectivity. Engaging with Middle Eastern partners to ensure continued investment in CPEC while maintaining a balanced approach towards IMEC will be essential.

Pakistan must also strengthen its outreach to the European Union, leveraging its trade agreements to secure long-term economic partnerships that align with its national interests. What’s more, policymakers must focus on improving Pakistan’s overall business environment. Ensuring transparency in investment projects, streamlining bureaucratic processes, and fostering a more investor-friendly climate can enhance Pakistan’s appeal as a trade and investment hub.

Given the shifting global trade dynamics, it is imperative that Pakistan’s policymakers adopt a forward-thinking approach. A reactive strategy will not be sufficient in addressing the challenges posed by IMEC; instead, proactive measures must be taken to position Pakistan as a key player in regional connectivity.

Enhancing Pakistan’s role as a transit hub for Central Asian countries, strengthening energy cooperation with Gulf States, and investing in modern infrastructure can help mitigate the risks associated with the rise of IMEC. In addition, Pakistan must work towards regional stability by fostering stronger diplomatic ties with its neighbors.

The evolving geopolitical scenario presents both challenges and opportunities, and a well-calibrated foreign policy can help Pakistan navigate this transition effectively. Strengthening internal economic policies, prioritizing sustainable growth, and fostering innovation in trade and commerce can ensure that Pakistan remains resilient in the face of global geo-economic shifts.

The rise of IMEC introduces a new dimension to global trade and connectivity, presenting both challenges and opportunities for Pakistan. While IMEC strengthens India’s trade links with Europe and the Middle East, it also poses competitive pressures on CPEC. To safeguard its strategic and economic interests, Pakistan must adopt a comprehensive strategy that focuses on economic diversification, infrastructure development, diplomatic engagement, investor-friendly policies, and normalization of relations with India.

To cut a long story short, by proactively addressing these challenges and leveraging its geographic advantages, Pakistan can ensure that CPEC remains a vital economic corridor, contributing to the country’s long-term growth and stability. The key to success lies in adaptability, strategic planning, and a commitment to fostering regional and global partnerships that align with Pakistan’s national interests.