Trump's tariffs likely to cause $1.4 billion hit to Pakistani exports

The tariffs levied against Pakistan by the US call for rapid action by both businesses and the government to scramble to diversify export goods and destinations. A 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.

However, reports reveal that the tariff rate Pakistan faces is actually significantly higher than 29 percent. Tacking on the 8.6 percent Most Favoured Nation (MFN) duty, the total tariff rate could surge to a staggering 37.6 percent.

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

While tariffs are currently suspended, data from the study indicates that if Trump reinstates the tariffs, the domestic textile sector would be hit hardest. Reports suggest that the textile industry alone could cause a spike in the domestic unemployment rate as PIDE projects that half a million workers could be fired. 

PIDE has indicated that the economy could witness a substantial drop in trade-related foreign exchange inflows, which could result in macroeconomic instability. Historically, Pakistan has run a trade deficit against its trading partners, and with US tariffs in place, some believe that the deficit could worsen.  

According to data from credible reports, Pakistan exported goods valued at $5.3 billion to the US in 2024 - A sizable portion of which were textiles. Domestic exporters are slated to lose market share to neighbouring India, which has not been hit as hard by Donald Trump’s levies. 

PIDE has suggested that relevant authorities participate in diplomatic efforts to dampen the effects of the tariffs by possible revisions. Prime Minister Shehbaz Sharif recently authorized a delegation from Pakistan to visit the US and attempt to secure better terms for Pakistan.

Some believe that if Pakistan decreases the tariffs it levies on US imports, the Trump administration could reduce its rate on Pakistan. This could significantly benefit the local textile industry as it imports a large quantity of cotton from the US.

As per reports, Pakistan imported cotton worth $181 million in 2024 to create final goods. If tariffs on the US are reduced, it could ultimately raise the competitiveness of the textile industry and potentially allow the Pakistani delegation to argue for lower reciprocal tariffs.