Trade Substitution in a Fragmented World: EU’s China De-risking vs. Russia’s Pivot to Asia -Where Does Pakistan Fit?

Abstract

This study examines Pakistan's emergence as a "swing economy" amid global trade fragmentation driven by the EU's de-risking strategy toward China and Russia's sanctions-induced pivot to Asia. Pakistan leverages EU market access under the GSP+ scheme for textile exports while pursuing discounted Russian energy and wheat imports via barter systems. This dual approach offers short-term benefits—trade diversification, energy security, and inflation control—but exposes structural vulnerabilities: overdependence on EU textiles, compliance costs, secondary sanctions risks (e.g., CAATSA), and institutional barriers to non-dollar trade with Russia. Empirical analysis (2019–2024) reveals Pakistan’s opportunistic hedging strategy faces sustainability challenges without institutional reforms, export diversification, and diplomatic dexterity to navigate competing EU normative pressures and Russian transactional pragmatism.