Monitoring Desk
ISLAMABAD: A state-run think tank has warned that a proposed hike in US tariffs on Pakistani goods—announced by President Donald Trump and currently suspended—could result in a devastating annual export loss of up to $1.4 billion, severely impacting Pakistan’s economy and export sector.
In a detailed policy note titled “Impact of Unilateral Tariff Increase by United States on Pakistani Exports,” the Pakistan Institute of Development Economics (PIDE) cautioned that the proposed 29% reciprocal tariff—when added to the existing 8.6% Most Favoured Nation (MFN) duty—could push total tariffs to 37.6%, triggering a 20–25% drop in exports to the US.
The analysis, conducted by Dr Muhammad Zeshan, Dr Shujaat Farooq, and Dr Usman Qadir, described the tariff threat as a looming storm for Pakistan’s trade outlook. The policy note underscored that Pakistan exported $5.3 billion worth of goods to the United States in FY2024—its largest single-country export market—making the move potentially disastrous.
The textile sector is expected to be hit hardest, given its already steep tariff rates of up to 17%. The report warns that key exporters such as Nishat Mills and Interloop could be forced to cut production, jeopardizing more than 500,000 jobs. Other sectors like leather, rice, surgical instruments, and sports goods would also face heightened risks.
PIDE stressed that the macroeconomic consequences could be severe, including loss of employment, erosion of foreign exchange reserves, and deeper external account vulnerabilities.
Despite the adverse scenario, the think tank urged policymakers to seize the crisis as an opportunity for long-overdue structural reforms and strategic diversification.
In the short term, PIDE recommends high-level diplomatic efforts to emphasize the mutual costs of tariff escalation and to preserve vital trade relations. In 2024, for example, the US exported $181 million worth of cotton to Pakistan—a supply stream now endangered by the dispute.
Pakistan could consider offering tariff concessions on selected US imports such as machinery, scrap metal, and petroleum to pave the way for negotiations. Furthermore, the use of US-origin inputs like cotton and yarn in Pakistani products could help maintain supply chains and possibly qualify for exemptions.
For the long term, PIDE called for robust diversification of both products and markets. Sectors such as information technology, halal food, processed foods, and value-added manufacturing could find new buyers in the EU, China, Asean nations, the Middle East, and Africa.
Other recommendations include lowering energy and logistics costs, simplifying regulations, encouraging innovation, and formulating a comprehensive US trade strategy that strengthens synergies in technology, agriculture, energy, and manufacturing.
Notably, the policy note flagged that the proposed US tariffs could breach the World Trade Organization’s (WTO) bound ceiling of 3.4%, raising legal concerns. However, PIDE acknowledged that pursuing WTO arbitration may be difficult given Pakistan’s fiscal constraints.
Highlighting the interconnected nature of global trade, the report pointed out the US-Pakistan textile loop—wherein American cotton is used in Pakistani mills to produce garments exported back to the US—as an example of how tariffs could harm both sides.
“The road ahead is challenging, but it also presents a chance for Pakistan to recalibrate and strengthen its export framework,” the report concluded.
With timely diplomacy, policy reforms, and a renewed focus on diversification, Pakistan could emerge from this external threat as a more resilient and competitive economy, PIDE said.
