Finance Minister Muhammad Aurangzeb has revealed that the US might remove the reciprocal tariffs it levied on Pakistan. According to reports, both countries have signalled the intent to strengthen bilateral economic relations via constructive negotiations on the issue of tariffs.

 

Addressing an audience at an event on Tuesday, the finance minister shared details of his constructive meeting with US Commerce Secretary Howard Lutnick. According to the minister, both countries are headed in the right direction with respect to tariff negotiations.

 

He highlighted the federal government's efforts to reach an agreement with the US, revealing how officials have “carried out tariff reforms to move towards [a] competitive economy.” As per reports, the minister intends to secure a trade deal with the US as soon as possible.

 

Reports suggest that the finance minister and US commerce secretary went over matters pertaining to investment, trade and potential avenues to boost bilateral economic ties. Details from the finance minister’s address suggest that additional  Pak-US technical discussions are to follow in the upcoming days.  

 

It merits a mention that a Pakistani trade delegation’s visit to the US had to be postponed following rising tensions in the Middle East, namely the exchange of Iran-Israel’s missile strikes.

 

If a trade deal is not finalised, Pakistan’s exports to the US could be slapped with a 29 percent tariff, making Pakistani goods on US shelves uncompetitive. This could jeopardise the annual $3 billion that Pakistan rakes in from exports to the US.

 

A recent study conducted by the Pakistan Institute of Development Economics (PIDE) has outlined how Donald Trump’s tariffs could result in massive layoffs in the textile, leather, rice, surgical and sporting goods sectors.

 

The study was conducted by senior research economists at PIDE, including Dr Usman Qadir, Dr Muhammad Zeshan and Dr Shujaat Farooq. These researchers extensively considered the possible effects of the 29 percent reciprocal tariff rate on Pakistani goods entering the US.

 

These tariff rates could prove devastating for Pakistani exporters as exports could shrink by up to 25 percent. To put the loss into perspective, Pakistan could experience a foreign exchange inflow reduction of approximately $1.4 billion.

 

Even if the tariff is reduced, the trade deficit may still widen as long as the tariff remains above zero. This is because the imposition of a tariff will serve to make Pakistani goods more expensive in the US market.