US Tariffs Pose Major Challenge to Pakistan’s Exports, But Opportunities Remain
The United States’ recent decision to impose a 39% tariff on imports from Pakistan may significantly impact the country’s export earnings, with potential losses estimated at up to $0.8 billion in 2024 alone, according to a new policy note by the Lahore School of Economics (LSE).
If the full impact of the tariff is transferred to American consumers over the next five years, Pakistan could face cumulative export losses of $4.22 billion, the report warns. However, the actual impact could be less severe if Pakistani exporters absorb part of the tariff or reach agreements with U.S. buyers to share the cost.
For example, if only 29% or 19% of the tariff is passed on to buyers through price increases, the losses in 2024 may reduce to $0.6 billion or $0.4 billion, respectively. These figures highlight the delicate balancing act between pricing strategies and market retention in the face of rising trade barriers.
Rising Global Trade Tensions
The tariff hike comes amid escalating global trade tensions, with the U.S., under President Donald Trump, imposing increased duties on several countries, including China, Bangladesh, and Vietnam. These nations compete directly with Pakistan in key export sectors such as textiles and apparel—areas where Pakistan may now find new opportunities.
The LSE policy note suggests that this shift could lead to trade diversion, where international buyers redirect orders to Pakistani suppliers to avoid higher costs elsewhere. This could help soften the blow of the U.S. tariffs, particularly in Pakistan’s textile industry, which is a major contributor to its economy.
Broader Economic Concerns
Despite these potential gains, economic risks remain. A global economic slowdown, fueled by prolonged trade tensions, could further affect Pakistan’s export performance. The report estimates that a 1% decline in global income growth could lower demand for Pakistan’s exports by around 1.445%. For 2024 alone, this may result in additional losses of $55.5 million to $92.5 million, and $0.29 to $0.49 billion over the next five years.
Textile Industry Most at Risk
The textile manufacturing sector is expected to take the hardest hit. A 39% tariff could cause textile exports to drop by $0.66 billion in 2024, with potential losses reaching $3.48 billion over five years. However, if exporters successfully negotiate cost-sharing deals or limit price increases, the losses could fall to $0.49 billion or $0.32 billion in the first year.
These figures highlight the importance of strategic dialogue between Pakistani exporters and U.S. importers, not only to reduce losses but to maintain strong trade relationships.
A Window of Opportunity
While the challenges are significant, the situation also presents a unique opportunity for Pakistan to strengthen its position in global trade. With higher tariffs imposed on regional competitors, Pakistan has the chance to become a more attractive sourcing destination for international buyers.
As protectionist policies continue to reshape global trade dynamics, Pakistan faces both risks and opportunities. Navigating this new landscape will require flexibility, innovation, and international cooperation, the LSE note concludes.
