Economists have identified both immediate challenges and long-term opportunities for Pakistan following the announcement by US President Donald Trump on Thursday that the US will impose a 29% tariff on goods imported from Pakistan. This tariff, part of broader duties on dozens of countries, is expected to intensify the ongoing global trade war.
The US government is imposing a 29% reciprocal tariff on Pakistan, in response to Pakistan’s existing 58% tariff on US imports. Ali Hasanain, an associate professor of economics at LUMS, noted that the US is one of Pakistan’s most important trade partners, with nearly a fifth of the country’s exports directed to the US. However, he pointed out that these exports represent less than 1.5% of Pakistan’s GDP. “Even if these exports are completely wiped out—which is highly unlikely—the impact would be minor compared to the significant economic shrinkage caused by domestic mismanagement,” he explained.
Hasanain added that while the tariffs may affect trade, the impact on US-Pakistan relations will likely be minimal, as US support for Pakistan’s IMF programme remains crucial. “The trade relationship is just one component of our dealings with the US, and the immediate impact on diplomatic ties should be limited,” he said.
As for Pakistan’s response, Hasanain emphasized that the tariff issue would lead to a shift in global trade patterns, as countries look for new markets. However, he noted that the US remains Pakistan’s largest market and may be hard to replace. “Pakistan should continue to seek diversification of markets while working with other countries to encourage the US to reconsider this course, which could shrink global trade and dampen economic activity,” he suggested.
Immediate Impact and Long-Term Uncertainty
Sajid Amin, an economist and deputy executive director at the Sustainable Development Policy Institute (SDPI), predicted an immediate negative impact, particularly because the US is Pakistan’s largest trading partner. “To mitigate this, Pakistan may need to subsidize local production to stay competitive,” he said. “However, it remains uncertain whether the IMF will allow such subsidies.” Amin also highlighted that while the immediate impact will be negative, the long-term effects depend on how effectively Pakistan offsets these challenges and innovates in industries where it holds an advantage.
Regarding Pakistan’s retaliatory measures, Amin observed that Pakistan’s 58% tariff on US imports is already high. “As a smaller trade partner, Pakistan has limited leverage in retaliating,” he added. “I don’t anticipate significant retaliatory measures from Pakistan.”
Challenges for the Textile Industry
Adil Nakhoda, an economist at the Institute of Business Administration Karachi (IBA), pointed out that Pakistan’s textile sector, which accounts for a major share of exports to the US, would face significant short-term challenges. He advised that Pakistan should look to increase textile exports to the EU and strengthen trade relations with other countries, regardless of its relationship with the US.
“Pakistan might need to explore sourcing upstream textile products from the US to reduce trade imbalances and potentially gain tariff concessions,” he suggested.
The Trade Relationship with the US Will Be More Transactional
Khurram Husain, a business journalist, noted that the new tariffs would make the US-Pakistan trade relationship more transactional. While Pakistan will certainly seek alternative markets for its exports, Husain emphasized that such transitions would take time, as there is currently no real substitute for the US market.
“Pakistan will certainly look to other countries to improve its export performance, but it will take a long time to establish new trade patterns,” he said. Husain added that while textile exports may be impacted, non-textile sectors will likely face even greater challenges.
Navigating the Tariffs: Making Exports Competitive
Maleeha Lodhi, Pakistan’s former ambassador to the US, echoed concerns that the new tariffs would adversely affect Pakistan’s textile sector, especially the low-margin categories. “Pakistan will have to find ways to adjust, whether by finding more markets or making its exports more competitive,” she said.
Impact on Competitors and the Textile Sector
Michael Kugelman, a South Asia expert, noted on social media that the new tariffs could significantly impact the textile industry, which is Pakistan’s largest export sector. “Textile exports from Pakistan and Bangladesh will likely be hit hard by these levies,” he said.
Pakistan’s Share of US Imports
According to Topline Securities, Pakistan’s exports represent just 0.16% of total US imports, amounting to about $6 billion annually, or 18% of Pakistan’s total exports. While this is a small share of the US market, it is significant for Pakistan, which heavily relies on textile exports. However, Pakistan’s competitors in the textile sector, such as Vietnam, Bangladesh, and China, face even higher tariffs, which could provide some relief for Pakistan’s textile exports in the US market.
“While tariffs on India are slightly lower than Pakistan’s, Pakistan may still face pressure in the textile sector, but the higher tariffs on Vietnam and Bangladesh might offer some respite,” the report concluded.
